What is Investing? To invest simply means to put money into an investment with the intention of either a capital gain/profit in the near future or a fixed rate payment, for example, a dividend, that’s intended to be received for a particular period of time, say a year, with the understanding that at the end of that period the asset will have increased in price. To put more simply, to invest simply means owning an item or an asset with the intent of generating a profit from the investment or even the rental return of that asset, that is, an increase in value over a pre-determined period of time. There are many different forms of investments, including the following: common stocks, preferred stocks, debt securities, mortgage-backed securities, short sales, and foreign exchange (Forex) investments. Many people use investment funds to create additional cash for living expenses and retirement; however, investing can also mean saving, so it’s important to understand how to invest for both.
How Does Investing Work? When you buy and/or sell an ownership interest in a company, the process is relatively simple. The investor buys shares of the corporation either through an agent or directly. Once the buyer has purchased a specified amount of shares, the broker then sells these shares to the investors on the stock market, creating a new ownership interest in the company. The process is repeated throughout the buying and selling process until the investor receives a specific profit.
Investing in a mutual fund is one of the most common ways to invest, as the funds typically represent a basket of different assets that have been carefully selected to represent a wide variety of possible future returns. The purchasing and holding of investment funds is not solely done by individual investors; there are investment funds managed by investment management companies who perform the same tasks as individual investors, only with more sophisticated tools and research. While the investment of money through a mutual fund is not the only way to invest, it is one of the most popular ways to invest, and is the method many people begin their search for investment strategies and knowledge of how the market works.