Introduction to Investing

Investing involves taking money that you currently have and placing it in some type of asset that you expect to increase in price over a long period of time. In the future, you hope to extract more money than you put in due to growth through dividends, interest payments or simple price appreciation. Typically, you would place an investment in one of the following products:

  • Stocks
  • Mutual Funds
  • Annuities
  • Commodities
  • Certificates of Deposit
  • Bonds
  • Real Estate Investment Trusts
  • Money Market Funds
  • Exchange-Traded Funds (ETFs)
  • Hedge Funds
  • Municipal Bonds
  • International Investing


The products that you choose to invest in are typically based on the amount of risk that you want to take. Different products offer different risk profiles and potential gains that you can accumulate.


Investing can be done at any stage of your life. If you have more time until you retire, you would typically want to be more aggressive with your investments. Individual stocks, mutual funds and ETFs all offer different types of risk. Some sectors of the economy are slow growers and provide constant returns year after year. An example of these type of assets include blue-chip companies such as Coca-Cola or Procter & Gamble. Investing in these companies would provide steady returns over time. Yet, higher risk stocks can also be bought to enjoy higher returns. These usually come from small-cap companies that are going through major growth. The amount of risk that you take on is dependent on your risk tolerance. Your risk tolerance is the amount of volatility and price swings that you are willing to tolerate in your portfolio.

Building a Portfolio and Diversification

A portfolio is created by investing in different types of products. If you choose to begin your journey into investing by purchasing stocks, you may build a stock portfolio that contains five or more stocks from separate companies. As time passes by and you accumulate more wealth from work or other sources, you may decide to diversify your portfolio and invest in other products such as mutual funds or bonds. Diversifying between products is the practice of spreading out your risk so that you don’t end up with too much of your money in one type of asset. If an asset takes a hit and you have all of your money invested in that asset, it could significantly drop the value of the wealth that you had accumulated up to that point. Diversification is a healthy way to ensure that you don’t get caught with too much of your money in one single asset.

Growth Over Time

Investing for the long term indicates that you are planning on holding an asset for the purpose of growth over a period of years. If you start early in your 20s, this period could be as long as 40 to 50 years. Statistics indicate that the United States stock market will have a positive year from January to December about 70 percent of the time. If you invest by dollar cost averaging, the odds are good that you will end up increasing your initial investment to a larger amount by the date of your retirement.

Dollar-Cost Averaging

As an investor, you need to decide what type of assets you are going to purchase. You may choose to buy individual stocks due to your ability to conduct extensive research or purchase mutual funds and rely on a fund manager to make those type of decisions. You will also need to decide when you are going to invest. Will this be a one time event or do you plan to dollar cost average? Dollar cost averaging is the practice of making periodic investments into the same asset. This averages out the price that you pay and helps you avoid purchasing at a high price. If you invest over time, you catch the swings in price when they are high and low. When this type of investing style is mixed with a long-term strategy, it should help you accumulate wealth if you’ve chosen an asset that appreciates over the long haul.

Always Learning More

In the realm of investing, there’s always the opportunity to learn more. You can dive deep into the intricacies of reading a stock chart, explore how the currencies of the world affect investing or study economic theory and discover why certain economic conditions are helpful. To get started with this exploration, it pays to understand terms related to the stock market, currencies, the economy and trading. Pick a topic and you’ll find a plethora of knowledge that can assist you with your investing endeavors. You’ll find that the topic of investing branches out into many different areas of interest.