What is Investing, Really?
Just a few years ago, the concept of “investing” was somewhat of a mysterious phenomenon to us. One could even equate it to the wardrobe that led Lucy and her siblings to Narnia: full of intrigue, excitement, and uncertainty about what lies beyond.
When we hear the word “investing,” it's often synonymous with "making money."
But what does that really mean?
At its core, investing is about growing your wealth by putting your money into opportunities that have the potential to increase in value over time. These opportunities span a broad spectrum, from real estate and stocks to mutual funds and even rare collectibles like the coveted Birkin handbag.
Let's start with a familiar example: buying a home.
Typically, when you invest in real estate, you anticipate that the value of your property will increase over time. The goal? To sell your home down the road for more than what you initially paid. But the same principle applies to other investment avenues, such as the stock market. It's all about tapping into the potential for growth.
Art is another intriguing investment avenue. You may have once assumed that art collectors were merely rich individuals with disposable income, splurging on extravagant paintings to decorate their walls. However, it's more likely that they view art as an investment.
By purchasing artwork at one price, holding onto it over time (while relishing its aesthetic appeal), and eventually selling it for a very nice profit, art enthusiasts can leverage their collections to grow their wealth.
But what about investing in the Stock Market?
Investing in the stock market operates on a similar principle. When you buy stocks, you're essentially entrusting your money to a company with the expectation of receiving a greater return when you decide to cash out. When you buy stocks (or groups of stocks, called mutual funds, index funds or ETFs), you’re lending your money to businesses. The business can then use your money to help it grow, and by the time you cash out, ideally the business will be worth more and therefore your stocks will be worth more. However, investing isn't a rapid-fire game of buying and selling; it's a patient journey that requires time for your investments to grow so you can eventually cash out with a healthy profit.
Let's talk about returns. Your profit – the money you earn – is simply the difference between your initial investment and the proceeds when you cash out.
For instance, if you purchased a stock at $100 in 2010 and its value surged to $250 over the next two decades, selling it would yield a $150 profit. But fear not, we'll delve deeper into this in a future post.
In summary, investing is about strategically placing your money in opportunities that have the potential to grow your wealth over time.
Whether you're purchasing property, buying stocks (or ETFs, mutual funds, or index funds), or indulging in other investment opportunities, the key is to align your investment strategy with your financial goals. Remember, there's no one-size-fits-all approach to investing – it's about finding what works best for you and your goals.
KEY TAKEAWAYS:
Investing really just means placing your money into opportunities with growth potential, aiming to generate a profit over time.
Real estate, stocks, art, and various other opportunities offer avenues for investment, each with its own unique dynamics.
Patience is paramount in investing; it's a journey that unfolds over time, requiring patience.
About The Authors
Amanda and Siobhan found a shared passion for personal finance shortly after completing their MBAs in 2018. Amanda excelled as a Director of Product in the tech industry, while Siobhan established herself as a leader in e-commerce before transitioning to academia as a Professor.
In 2020, they joined forces to found Hiver Academy, a platform born from their own experiences and triumphs in conquering student loans and building wealth. Realizing that financial success is within reach once the complexities are simplified, their mission now revolves around empowering individuals to achieve financial freedom.
With a wealth of knowledge and a commitment to demystifying money and investing, Amanda and Siobhan are dedicated to helping others navigate the path to success.
