When looking to grow our cash, I keep running across a few different types of investments mentioned in many places. In this post, I want to talk about the basic categories of investments that I will eventually write about a lot more. The major types of investments that I hear about are stocks, bonds and mutual funds.
From the last article, Investing 101, we talked about how we invest our money to make more money. This makes our “money work for us.” One of the essential tools for accomplishing this is “interest” and it’s more powerful brother “compound interest”. Here I intend to go through basic definitions of both and show some examples including and example of how you might help to guarantee that your children are taken care of.
Investing is defined by Merriam-Webster as:
So, we give someone else our money, in order to make more money. When I have extra money, I can choose to spend it in several ways. I can spend it:
If I buy things for myself or others, I have paid my money for a passing moment. I may have fond memories of that moment. I may find the things I buy useful, but at the end of the day, the money is gone. I have a “return” of immediate pleasure.
If I leave it in the bank to be immediately available to me (I’m thinking a simple checking or savings account in this case) then I get neither the immediate pleasure nor the “extra” money that I would have from investing it. I have no “return” except perhaps to feel safe in an emergency.
If I invest it, my hope is that I will gain more money. That money in addition to my original money can then be used to buy me or others things at a later date. I have a “financial return“.
A phrase I have heard often is that investing is like “making your money work for you.” This is a nice sounding phrase but what does it mean? It essentially means that the money you give for investing is working, like you work. It does it’s job making more of itself, just like I do my job at the company I work.
The problem I have with this phrase is that it makes it all seem too easy. It doesn’t mention how that “financial return” comes. It comes because you take a “risk“. There is no investment vehicle where you give your money to someone else and make more money, without risk.
How is this different from gambling? It doesn’t seem to be different at its heart to me. However, investments sites consistently claim that the money they get back is real. In fact, I consider investing to be like a game. In any game, you need to risk to find reward and you need to manage those risks to survive. It’s the same here. That’s what this whole series is about. Managing those risks.
So, to summarize:
I hope you’ve enjoyed my babbling about something so basic. Sometimes working these things out in writing really help me to keep them in the forefront of my mind.
I do plan on doing many other posts but do you think I missed anything here? Am I off-base in any of my statements?
If any of you have taken a look at our “About ” page, you’ll see that we admittedly have not done the right things with our money. What the right things are, well, we don’t really know. This is the first post in a series of posts I am putting together to discuss investing.
One thing that you learn very quickly when teaching, is that the best way to learn is to teach! If you can’t teach, then the second best way is to try to write things down. Blogging is a great way to do that.
Here’s a bit more background on me, so you know where I’m coming from. I am in my mid 30’s and have spent most of my life spending. Whenver I wanted something, I got it (within reason). However, now what I really want, is to be able to retire someday! To reach this goal, I know I need to become much smarter about our money.
So, I come to this with a fairly fresh mind. Fresh meaning, ignorant when it comes to money. However, I do have one thing going for me. I love to learn and ask questions.
So, we began this blog to begin to better understand our own finances, motivations and possibilities. What CAN we do with our money so I can retire someday? What options are available? How much money do I need to dedicate to this goal? Can we do this without hurting our family life?
All these questions lay before us, and I hope in this series to begin to answer some of them.
Hopefully, you learn something too. If nothing else, look for things to NOT do. I’m pretty good at finding those.
