how do you invest? what exactly is investing? why do people invest? is it risky? does it need bitcoins or crypto? (lol i also have no idea on what is crypto or bitcoins i’m just trying to guess lol)
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Imagine you walk down your street and see a small hole in the wall bakery. You stop and decide to try a brownie only to find it is the best brownie you’ve ever had in your life. You think other people will also like the brownies and the business owner says they would have loved a bigger place but could only afford the small hole in the wall.
You pass the next week and you see a line out the front. You chat with the owner again and they say they could service more people if they had a bigger shop. You stop and think about the money you’ve been saving up for a while and decide to offer a load to the business owner of $5000 to help him expand into a bigger bakery.
He takes the money and expands. He can now earn more because he can bake more, sell coffee, supply local super markets. He says your money has doubled his earnings and that when you decide you want your money, he would find it only fair to offer you double your loan. He also says that if you decide to keep you money with him, he will pay you a small percentage every once-in-a-while as a thanks.
You have essentially invested in his business. As his business (your investment) does well, the value increases. He offered you a dividend if you chose to keep your money with him as a thank you. If his business tanks, your loan also tanks. This isn’t easy to explain when you think of it as a loan but once you have understood the above, you can start to think of it as buying a portion of his business for $5000. That $5000 fluctuates with his performance.
Bitcoin is a similar concept but based off entirely different values. You do not need it for basic investing.
Is investing risky? Yes. The brownie baker may make some poor business choices. People may go on a health kick and stop eating brownies, some competitors may drown him out, COVID 2.0 could happen. All of those would tank the value of his business. Alternatively, he might do extremely well and open 15 more stores in the next decade. It’s a risk but that’s why there are returns.
Investing is to buy something today which you think will earn you more money in the long run or be worth more later.
It can be anything, from buying gold today and thinking it will be worth more later, to buying a house today because you think it will go up in value. Or buying stocks, which are partial ownership in a company.
It doesn’t matter what you use to buy it with either, the point is just that whatever you buy is an asset you think will earn you money or go up in value.
All investment is risky. You mitigate the risk by diversifying what you invest in. For example generally speaking, when stock prices are high, bond prices are low and vice/versa. So if you diversify your investments, you’ll be making money SOMEWHERE most of the time.
“Investing” is when you buy “shares” of a company/industry/market that you believe holds value with the intention of being rewarded by that company in dividends or higher stock prices down the road that you MIGHT sell if the price is right. You could be wrong, you could be right.
There are 3 things to know about investing.
1. Spend as little as possible to invest. Think of this as if you went to the ATM to get cash to buy apples. If the ATM fees are high, you’re paying just to pay for apples. If apples are on sale for $2 off, but you spent $3 in ATM fees just to pay for the apples, you’ve already overpaid. Companies like Vanguard allow you to buy your apples at cost with no fees.
2. Many people are trying to “beat the market”. The very best/brightest/luckiest people who do this for a living, who went to school to learn to “beat the market” still fail to do this regularly. You can BE the market they’re trying to beat if you invest in Index Funds, which are bundles are various stocks. You can buy the entire stock market in a bundle pack with specific Index Funds. Think of it like playing a number on the roulette wheel vs owning the casino. You might hit big with specific stocks, but the house always wins in the long run. Be the house.
3. Making money takes TIME and PATIENCE. It’s a steady stream of a lifetime of investing, making money off of those investments, then investing more. Google “Compound Interest Calculator” and punch in some numbers. The more time you have to invest, the better off you’ll be over time. It’s better to invest a little over a longer period of time, like when you’re 20 years old, than to dump a bunch of money in when you’re 50. Time=money. The more time you have, the more money you can earn. (Or recover if you lose)
You should read two books to have a very clear understanding of investing. Read them in order.
1. The Intelligent Investor -By Benjamin Graham.
2. The Boglehead’s Guide to Investing -By Taylor Larimore
Those two books, read in that order, will give you a great foundation on how to Invest, what the difference between investing and speculating is, and how to maximize your profits while minimizing your risk. The TLDR of those books is that the greatest minds in the world can’t reliably tell what the market will do in an individual business sense, but they understand that “over a long enough period of time, the market tends to go up”. The Einstein of the investing world recommended Index Funds for people who want an overall lifetime of good earnings, nothing crazy risky over the course of your entire life, but not bad either.
As to the “why” of investing. Your money makes you money. If you’ve investing in things that earn a “dividend” then you can turn around and put that money back into buying more of the thing that makes you money. If you buy a box that costs you $2 to buy, and it pays you $1 each year, in a few years the money the box pays you gives you enough that you could buy another box with, which also pays you. This snowballs over enough time.
Most things you buy lose value as soon as you buy them. We know this because if you try to resell them, you have to resell them at a lower price. You’re losing (money-based) value over time.
There are a few areas in the economic world, though, where things increases in value over time. I.e., there’s a good chance you’ll sell the thing for more than the price at which you bought it. (A house, a financial asset like a stock or bond, etc.)
Investing is very basically when people try to buy more things that they know or expect will increase in value over the medium to long term. (And this is a way of essentially “saving” money at a higher interest rate than a savings account at a bank, which are usually pretty low and won’t accrue you much interest over the long term.)
You could think of the world consisting of two kinds of people: people that have money now, but want income in the future, and people that need money now to generate income in the future. For example, maybe you have 10k and your friend wants to start a business.
It’s mutually beneficial for the first kind of people to give the second kind of people money in exchange for a cut of the profits in the future, and this process is called investing. Of course, there’s risk involved because nothing is guaranteeing that the other person will do something good with your money, but on the other hand maybe they do much better than you expected.
Investing doesn’t need any crypto, just any sort of capital that you’re willing to give to another party for them to use to generate more value.
Investing means to put in something hoping to get more out. So if you put in $100, you hope to get more than $100 back.
More popular form of investing (in terms of buying it in hopes to get profit) is stocks. If a share of Apple is $150 (which is somewhat negotiable), you buy a share and hopes it can be sold in the future for more than $150. Some companies, like Apple, even give you a tiny reward (called a dividend) every so often for everyone who ones a share of their company. You can just download ETrade or Fidelity, set up an account, transfer money from your bank account, and start trading. Historically, investing into an index fund that tracks the S&P 500 or similar give returns of about 10% each year (I have some money in VTI & VOO for instance).
Vintage cars could be an investment. You can watch a car auction on TV and an old Mustang will sell more than a new one.
Homes/properties can be an investment. Usually, real estate prices go up an up. A home worth $400,000 could be worth $600,000 after a few year, especially in areas that are getting urbanized.
> how do you invest?
Depends on what exactly your investing in, there is no universal answer here. The only universality is that you need money to start with.
> what exactly is investing?
Using your money in a way that is going to (hopefully) generate more money for you.
> why do people invest?
There are a bunch of wonky economic reasons why if you wanna crack open your Adam Smith’s and the like, but really its the above, who doesn’t want more money.
> is it risky?
Depends on how you define risk.
– If you define it in the common use of it, of there being significant danger of harm or death though financial in this context. It can be but you shouldn’t be putting yourself in those scenarios. You shouldn’t be reliant on investment returns to live essentially.
– If you define it in investment parlance, where risk is just how volatile the price of an investment is (how much it could go up or down in a given time), then inherently yes. If there was no risk, you couldn’t make money off it. From there its a question of how risky you want to be.
> does it need bitcoins or crypto?
Dear god no, crypto is gambling not investment.
Good answers in this thread but please for the love of god stay away from crypto if you dont know what investing is
Its really just gambling, and even the people who think its a real investment know its a far riskier investment than most other things. Not for beginners, and not for people who cant afford to lose their entire investment
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