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Investment 101: The Most Basic Terms You Need to Know

Investing for the first time? Speak the language with this easy guide!

Even if you have a regular job with a steady salary, any additional source of income is always welcome. Everybody could always use some extra cash: maybe you’re saving up for a new home or car, planning to treat yourself to a well-deserved vacation, or are thinking of retiring in the near future.  

Investments, people say, are a surefire way to earn money. But what exactly does “investments” mean? (Read: 3 Things Every Newbie Investor Should Know)

For starters, investment means putting in or using “money or capital in order to gain profitable returns, as interest, income, or appreciation in value.” It also refers to “a thing invested in, as a business, quality of shares of stock, etc.” All investments come with a risk, (“the potential for you to lose some or all of your investments, or to fail to achieve your investment objectives”).

Low-Risk Investment

investing-for-the-first-time-speak-the-language
Photos from (background) Gabby K from Pexels and (speech bubble) IMGBIN.com

In practice, people usually invest in what are generally considered low-risk (or safe) investments. These include the following:

  • Stocks are “a long-term, growth-oriented investment representing ownership in a company;”
  • Bonds involve “loaning money to a company or government,” which you can cash in “on the maturity date and collect some interest;”
  • Treasury bills or T-bills are short-term, low-risk investments issued by the government through the Bureau of Treasury;” and
  • Mutual funds involve “a pool of many investors’ money that is invested broadly in a number of companies.”

And if you choose well and have the money for it, real estate can be a profitable investment, too.

High-Risk Investment

investing-for-the-first-time-speak-the-language
Photos from (background) Gabby K from Pexels and (speech bubble) IMGBIN.com

Are you the type to go “all or nothing”? High-risk investments may be the investment for you. Sure, the possibility of you losing your investment is there, but so is the likelihood of you yielding higher profits.

Some examples of high-risk investments include the following:

  • Hedge fund is “an investment partnership that uses high-risk, speculative methods to obtain large, short-term profits;”
  • Angel investing involves “investing in a new or small business venture, proving capital for start-up or expansion;”
  • Initial Public Offering or IPO is “when a company ‘goes public’ or initially offers shares of stock to the public;” and
  • Cryptocurrency, such as Bitcoin, are “digital currencies not backed by real assets or tangible securities.”

What You Need to Know

investing-for-the-first-time-speak-the-language
Photos from (background) Gabby K from Pexels and (speech bubble) IMGBIN.com

Before jumping on the investment bandwagon, make sure to learn all you can about what you plan to invest in and check your funds to see if you can afford what you’re interested in investing in. (Read: 5 Ways to Manage Your Finances Amid COVID-19)

Steer clear of so-called investment schemes that require you to put out a huge amount of money and promise to double or triple your capital in a short period of time. They are most likely fraudulent and the likelihood of you getting your money back is slim.

As for the best type of investment, why not invest in yourself? Improve on one of your existing skills (or learn a new one), take care of your health, and work on building character.

“Investing in yourself is one of the best return of investments you can have,” wrote author, business strategist, and international speaker Megan Tull. “When you invest in yourself, a world of opportunities will open up for you.”

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