Investing, a term that is used often, but what is investing exactly? Before we continue, let’s briefly share what investing is. Chances are you already know this, a little reminder never hurts.
What is investing
An investment is an activity in which money is committed for a longer or shorter period of time with the aim of gaining financial benefit in the future. Investing can be done in different ways. You can invest in the stock market: in stocks, bonds or ETFs. You can also invest in real estate, cryptos or gold. It’s about channeling your money somewhere, assuming that your money is going to increase in value.
You are already investing
Chances are you are already an investor, perhaps without realizing it. Are you accruing pension through an employer or your own company? That is a form of investing. Or do you already have a savings account? Then you also invest in yourself. It is good to realize that you are probably further along than you may think. The step to additional investment activities does not have to be that big.
Nowadays investing is very popular. However, people often confuse ‘speculation’ for investing. Investing is essentially a lot more boring than speculating. With investing you invest your money, where you want to minimize risk and let your money work for you in the long term.
To speculate means to take a bet every now and then and hope that you will make money quickly in the short term. However, keep in mind that anyone who has once made a lot of money with speculation will be on the barricade in a short time. Everyone who has lost a large part of their money with speculation, you don’t hear of. We would like to urge you not to let your emotions get the upper hand; not to go along with a hype with money that you cannot afford to miss, but to focus primarily on long-term profit.
Investing is not without risks. It is important to realize that. But the word ‘risk’ often scares people, and that’s not necessary. You can invest in a way that minimizes your risk as much as possible. In another article we will deepdive on the risks that come with investing.
Ways to invest
You have probably already looked up some information about investing, with many investment terms making you go nuts. From people who tell you to invest in cryptos, to influencers who analyze stocks and make suggestions for you. No wonder it can happen that you get overwhelmed and don’t know how and where to start!
No one size fits all
When it comes to investing there is not one way, there are many different ways to invest. What works best for you has everything to do with YOU. Your wishes, needs and goals. So don’t be fooled by people who have had success with 1 way of investing that this should also be your way. Your best investment strategy is one that suits you and your life. In order to be able to create your investment strategy, it is important to understand what types of investment there are. Let’s talk about it briefly to get you excited.
Passive versus Active
The first tweak we can make in the world of investing is the difference between active and passive investing. In short, this means that when you invest passively, you just transfer your money, and let someone else (could be a bank) do the work. So you don’t have to worry about it and just make sure that you invest money regularly, and that’s it.
If you are going to actively invest, in addition to transferring your money to an investment account, you also need to choose and select your investments yourself.
For example, if you invest in funds through a bank, every month automatically deposit X amount into your investment; let the bank do the rest, you invest passively.
If you transfer money to an investment account with a broker and then select your own stocks or ETFs and buy them every month, you are actively investing.
Note: there is a difference between banks & brokers. We will get to this later.
Types of investment products
If you then zoom in on different investment products, the following products are the most common: savings, shares, trackers (ETFs), funds, bonds, real estate, cryptos, commodities (silver, gold, commodities) and crowdfunding. We need more time to explain to you all these different products, stay with us!
Risk versus Return
If you are going to make choices with regard to your own investments, it is smart to take a good look at the balance between risk and return. For example, if you look at ‘saving’, the risk is very small, but so is the return. If you are going to invest in cryptos, your risk is huge, but so can your return. However, the chance that you will lose a large part of your money is just as likely as the chance that you will make a lot of money.
When it comes to investing, there is a wisdom that we believe should be tattooed on your arm (so to speak): “The first rule of investing is not to lose money. The second rule is to never forget rule number one.”