What is investing?

Investing is the act of investing money. The goal is for the investment to become worth more in the future. And to increase your wealth that way. You invest with the expectation that your invested money will become worth more. But the money you invest can also become worth less. This value is called return. Return is the difference between return and deposit of an investment or investment. And can be either positive or negative. 

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Investment Types

When you invest, you invest your money. You can invest in stocks, bonds or mutual funds, for example. But also in real estate (houses and other buildings), commodities such as gold and crypto currencies, for example. Read more about the 5 best known ways of investing here. 

Operation of the exchange rate and exchange rate fluctuations

Whether the return on your investment goes up or down is determined by the price. The exchange rate is the price of a product at the time. The exchange rate is created by the demand for the investment and its supply. So the more popular the investment is, and the less supply, the higher the price becomes. But the price of an investment can fluctuate wildly. These price fluctuations can come from a variety of reasons. 

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1. Investor sentiment

The price of investments is related to general sentiment in the stock market. This is about how much confidence investors have in the market, how well the economy is doing. This can include panic, fear and worry, as well as optimism and euphoria. Investor sentiment also often tends to follow a recognizable pattern, based on past events.
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2. Earnings expectations and performance

A company's performance and earnings expectations are incredibly important to investors. Depending on this information, investors can determine what the prospects are. And whether it is a good idea to invest in the company. If a company makes a lot of profit, it becomes worth more and more people are interested in investing in the company. There is then an increase in price (and value). The way a company gets in the news can also affect. Do they get a lot of negative press? Then prices may well start to fall. 

Thus, stating expected earnings can cause stocks to rise or fall. Investors often base these expectations on news reports and previous results. But that does not guarantee the future. Still, a company's performance affects its stock price.

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3. Interest rate policy

Investing is related to the level of interest rates. Because when interest rates are low, the demand for investments usually increases. This is because spending and investing becomes more attractive than saving. Large central banks influence the stock market the most because they are the largest. Such as the interest rate policy of the European Central Bank (ECB) and U.S. Fed. 

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4. External factors

Political unrest, a pandemic or an impending war in a country, can be a reason why the stock price falls. This is because these factors all affect the economy. Are the prospects of the economy not so bright? Because of an impending war, for example. Then investors may consider investing less or even selling. 

The advantage of investing over saving

When you want to put money aside, there are several options: saving through the bank or investing. The advantage of investing is that your money can grow faster than with saving. The longer the period you invest, the higher the yield can become. But investing is never without risk. With short-term investing, you run a greater risk. This is because your investment can also become worth less. That is why it is important to learn about this. And learn how you can limit risks. 

For what purpose do you want to invest? As a retirement supplement, or maybe you want to invest for your child's future. Or you want to have more money without a specific goal. How long you want to invest may depend on this goal. For example, how long until you retire? Or until your children go to college or live on their own? The longer you can spare the money, and thus invest the money, the greater the chance of a higher return.

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Invest yourself or outsource?

Investing scares many people because they have no idea how to do it. They often have no understanding of the possibilities and risks. But even if you have no knowledge of it, you can invest. You then outsource this to a bank or broker. A broker is a financial company where investors can buy and sell shares and funds (i.e. your investment) themselves. The bank or broker is the manager and invests for you. 

Do you find it interesting to learn more about investing? Then you can also invest yourself at independent brokers. But for that you need to have sufficient experience, knowledge and time. You also need to have a good understanding of the risks to earn from your investments. Read more about independent investing options here.

If you are not yet experienced, it is better to outsource it to experts. This can be done through the bank or so a broker. You can still choose what you invest in. Like stocks, bonds, mutual funds, but also commodities. And you also choose the investment and spread yourself. 

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Reducing risks of investing

The higher the return is, the greater the risk is usually. If the return is positive, it means that your investment will be worth more. But a positive return is never a promise that the investment will actually make you money. In fact, a positive return can drop during your investment. To limit this risk, it is best to spread your investment well. So don't invest all your money in one company. Investing over a longer term also limits the risk. Because a falling return can also rise again over a long period. 

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Cost of investing

Remember that most forms of investing also cost money. In addition to the deposit, you also pay a percentage in such things as transaction fees and service charges to the bank or independent broker. You also pay this when buying or selling investments. You can easily find these amounts online at your bank's site. 

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You now know the basics of investing and know the most important terms. So, nothing to be afraid of! Are you interested in investing your money? Then read this blog on how to start investing. Reading up is the first step!