2. What is “investing”?
Financial Investing means putting
money into something with the
expectation of gaining more money
within a certain period of time.
Common methods of investing
are speculative financial transactions
such as stocks, mutual funds, real
estate, oil and gas leases,
commodities, and futures.
Outside of the world of finance, investing can also refer to putting anything of
value that you might have into something else, with the expectation that you
will get something out of it in return. For example, you can “invest your time” in
work or projects that you think will result in something good.
3. Why Invest?
Many people think it is a good idea
to simply take their money and put it
away in their bank account so that
they can save up for a home or
retirement. This would be the safest
way to keep your money if not for
one thing: inflation.
4. Inflation
In economics, inflation is a rise in the general level of prices of goods and
services in an economy over a period of time. When the general price level
rises, each unit of currency buys fewer goods and services. Consequently,
inflation also reflects an erosion in the purchasing power of money
5. Return on Investment
When the value of an investment rises
higher than the amount of money
invested, this profit is known as the
return.
If a person who is worried about
inflation takes their money and invests
it in something that yields a higher
rate of return than the current rate of
inflation, then not only is their money
safe, the value of their holdings should
begin to grow over time.
6. What do you think?
• What are some reasons that people might
want to risk their money investing it in
financial markets?
• Are you concerned about inflation?
• Besides your money and your time, what
other types of things can you invest?
7. Stock
The stock of a company represents the
original capital paid into or invested in
the business by its founders.
The stock of a business is divided into
multiple shares. The shares of a
company may, in general, be transferred
from shareholders to other people or
groups by sale or other ways.
The price of a stock changes fundamentally due to the theory of supply and
demand. Like all commodities in the market, the price of a stock is sensitive to
demand. Essentially this means that if more people want to buy shares of a stock,
those shares become more expensive.
8. Bonds
A bond is a type of investment that
someone can buy from an organization
(companies, governments, etc.) as a way of
loaning money to that organization in
exchange for agreed on interest payments
over a fixed period of time.
For example you could buy government
bonds that would pay 5% interest every
month but you may not be able to use this
money for 8 years.
Many people look at buying bonds as a safer
way to invest money than stocks. However,
during especially good economic times, it is
possible for stock to make a lot more money
than bonds, although at a higher risk.
9. Mutual Funds
A mutual fund is a professionally managed
type of collective investment that pools
money from many investors to buy stocks,
bonds, and/or other securities.
Each person who invests in a mutual fund is
able to invest a reasonable amount of
money, similar to what they might pay
buying stock. However, since each fund has
many investors, the fund managers are able
to buy a wider variety of investments
(stocks and bonds) than an average person
could themselves. Investing in a variety of
different things is known as diversifying,
and it is a much safer way to invest than
putting all of your money into a single
stock.
10. Commodities
Well-established physical commodities are
also actively traded on markets. Generally,
these are basic resources and agricultural
products such as iron ore, crude oil, coal,
salt, sugar, coffee beans, soybeans,
aluminum, copper, rice, wheat, silver and
gold. Investors hope to buy commodities
when they are cheap, and then sell them
later when the prices are higher.
Some commodities are a very good
investment during difficult economic times.
For example, the price of gold has continued
to go up for most of the past thirty years.
11. Real Estate
Real estate investing involves the
purchase, ownership, management,
rental and/or sale of real estate for
profit. Improvement of realty property
as part of a real estate investment
strategy is generally considered to be a
sub-specialty of real estate investing
called real estate development.
An investor can not only sell their
property for a profit later on, but they
can also choose to become a landlord
and rent their property to people who
would like to live there.
12. What do you think?
• What is the best way to invest your money?
• Do you want to try making money on the
stock market?
• Would you prefer to invest your money safely
in a diversified fund, or risk buying only one
stock for a higher profit?
• Do you think that it is a good idea to buy real
estate as an investment?
13. “Time Is Money”
"Time is money" is a saying first promulgated by Benjamin Franklin (shown here
on the $100 bill) referring to the notion that time is valuable and money is
wasted when a person's time is not used productively.
So, when we are considering a job or investment that might earn us a certain
amount of money, we would be wise to also consider what else we might be
able to do in that same amount of time that could result in even greater
rewards.
14. Economic Bubbles
Speculative investing can cause
prices to change from their real value
if speculators trade on
misinformation, or if they are just
plain wrong. This creates a positive
feedback loop in which prices rise
dramatically above the underlying
value or worth of the items. This is
known as an economic bubble. Such
a period of increasing speculative
purchasing is typically followed by
one of speculative selling in which
the price falls significantly, in
extreme cases this may lead to
crashes.
15. Stock market crash
A stock market crash is a sudden dramatic
decline of stock prices across a large cross-
section of a stock market, resulting in a
significant loss of paper wealth. Crashes are
driven by panic as much as by underlying
economic factors. They often follow
speculative stock market bubbles.
There is no specific definition of a stock market
crash but the term commonly applies to steep
double-digit percentage losses in a stock
market index over a period of several days.
16. What do you think?
• What do you think about the expression “time
is money”?
• Are you concerned that the economy in your
country might be heading towards a bubble?
• What would you do if there was a stock
market crash tomorrow?
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