Investing is something we all know is good to partake in, but what does it really mean to invest? Should you do it, and how can you? While it sounds simple, it is a bit more complicated than just adding money to a particular business and waiting for it to grow. Investing requires research, patience and money that you are willing to lose.
First things first, it is a great thing to learn how to invest and all that goes into it, even if you are not ready to actually invest. Not everyone is ready to invest; how to understand if you are ready relies on three main things: do you know enough about investing, do you have extra money to invest and are you willing to lose that money you put forth to invest? If you don’t understand how investing works, learn — don’t give up — and take the time to learn.
A great resource to learn about investing, finance, accounting and such would be a website called Investopedia, which is like Wikipedia for all things money. The link to it will be at the bottom of this article for your use.
Regarding investing, you have to have money to invest with — money you are willing to lose. If you don’t have money to spare and still comfortably live, then don’t use what money you do have to invest.
Next, understanding investing requires understanding what you are investing in. To invest in a company is to bet, in a way, that the company will grow and the value of the company will grow as well. To know which company is likely to grow in value, an analysis of each company you might want to invest in is needed. Most analytic tools to analyze a company are based in ratios, like how much debt a company holds compared to the equity, or value, of the company’s shares. Shares are what you would buy if you were to invest in a company. The value of each share fluctuates, and the higher the value per share, the more valuable the company.
To truly understand how to make a good investment choice, as in how to pick a great company to invest in, it takes time and practice. Like anything, the more you evaluate companies, the better you will get at making investment choices, just like the more you study literature, the better you will become pointing out the themes within the text you read.
It is also important to understand how the stock market works; like the tides, there is an ebb and flow to the growth of it. There will be times when the market is contracting, or not growing. This kind of market is called a bear market. When the market is growing and valuations rise overall, this is called a bull market. So when someone is talking about how the market is doing, if they say it is a bear market, that means it’s performing poorly, while a bull market means the market is growing overall.
Another set of terms would go along with the division of funds, a fund in this case being a group of companies you have invested in. A growth fund is a culmination of companies that most likely are not going anywhere, like Apple or Disney. These companies have a steady growth over time and are not prone to being volatile.
On the other hand, there is a value fund with companies like Amazon or Tesla, companies that have high growth periods but can be volatile in terms of price changes. So in one day the stock could be losing a lot of value really fast, then the next day it breaks a new record for the value of its own stock.
Investing, for lack of better words, appeals to those that are willing to take more risk than others and that might have more financial oriented minds. Overall, it is a great skill to learn, but it is important to know when you are able to invest and recognize when you shouldn’t.
Evan Brooks is a third-year Business Management major with minors in Economics and Civic and Professional Leadership. EB916132@wcupa.edu