What is investing?

Your coaches introduce the lesson.

CassieBefore you actually invest your money, it’s a smart idea to understand the basic concepts of investing. In this lesson, we’ll explain what investing is, common types of investments, and the difference between investing and saving. We’ll also explain how inflation can reduce your earning power, and how compounding can make your money grow.

LuisSo let’s get started! The basic idea behind investing is to put money you’ve saved into things you think will increase in value over time. There are lots of possible investments. Two examples are stocks and real estate. The trick is to buy when the price is low, then try to sell when the price is high. That’s how you make a profit!

CassieAny time you sell an investment for a profit, your earnings are called capital gains. If you lose money when you sell your investment, you’ll have what’s called a capital loss.

LuisKeep in mind that with investing there’s always a risk of losing some or even all of your money if the investment doesn’t perform well. That’s why you should never invest money you can’t afford to lose.

CassieIn general, the greater the risk of a loss on an investment, the greater the potential return. The lower the risk of loss, the lower the potential return.

Investing
Examples:

  • Stocks, bonds, real estate

Risk vs. return:

  • Possibility of capital gains
  • Risk of capital losses

After you’ve covered this lesson on Investing Basics, see the lessons How to Get Started Investing and Your Portfolio.

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