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.
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