What even is investing
Investing as a concept is simply putting money into something, in the hope that you get more money back. It’s a money multiplier.
We know you can’t save your way to riches, you have to multiply your money. So you have to invest.
But investing brings with it risk- if you’re putting money into something then you might not get it back. Depending what you put it into will depend how likely you are to get it back.
Important difference- investing v speculating
People are often speculating when they think they’re investing. You need to know the difference.
When you invest, you put your money into an asset that you expect will generate a return.
When you speculate, your return is solely dependent on someone else being willing to pay more for that asset in the future. The thing itself isn’t doing anything for you.
Investing is smart and logical, speculating is gambling.
Two key ways to know if the thing you’re looking at is an investment or a speculation. If it’s an investment:
you’ll be able to work out roughly what it’s worth using some logical reliable and repeatable route (eg cash returns)
the asset itself generates a return for you, even if you don’t sell it
If you have no way of determining the value of something outside of what someone else is willing to pay for it (art, crypto etc), then you’re speculating. For you to make money you’ve got to hope someone will pay more in the future for that thing than you did today.
So your return rests on your ability to forecast how other people will behave.
Investing is putting your money to work in something that will generate an actual return itself- cashflow, dividends, earnings etc. Even if you don’t sell it you’re making money.
Invest don’t speculate.