Investing

When you invest you allocate money or resources into something, in the expectation of generating an income or profit.

When talking about investing, most of our articles will be referring to buying stocks and bonds. Sometimes we will also include real state, materials, precious metals and alike. Nevertheless, investing is much more than that. Training courses, the education of your children and private health care are all investments in one way or another.

When investing, risk and return are two sides of the same coin. In one side you have low risk, that generally means low expected returns. On the other side, you have higher returns that are usually accompanied by higher risk.

Risk and return expectations can vary widely within the same asset class; a blue-chip that trades on the NYSE and a micro-cap that trades over-the-counter will have very different risk-return profiles.

The type of returns generated depends on the asset; many stocks pay quarterly dividends, while bonds pay interest every quarter and real estate provides rental income.

Whether buying a security qualifies as investing or speculation depends on three factors – the amount of risk taken, the holding period, and the source of returns.