What Are Investments?
Investments are things of value, or assets, that you buy now in the hopes they will be worth more later and/or will provide income in the form of cash or other valuable items. Personal investing usually means the purchase of financial securities like stock and bonds, or of physical property such as commodities, collectibles or real estate. Investments are risky and can lose money, so it’s a good idea to research an investment before taking the plunge.
Investments vs. Savings
Normally, investments carry the risk that you will lose part or all of the money you put in. In contrast, savings are meant to be risk-free and are often insured, such as bank savings accounts insured by the federal government. The amount of investment risk depends on the type of asset. For example, you can buy short-term bonds from the U.S. Treasury that have virtually no risk, but so-called "junk bonds" issued by low-rated companies carry high risk. Normally, you expect to earn more from riskier investments than from low-risk ones or from savings.
Investing in Stocks
Stocks are securities that corporations issue to raise money. Each share represents a small piece of the company, so shareholders are the owners of the company. You buy shares on a stock exchange and can make money if you sell your shares for more than you paid to purchase them. Some corporations distribute dividends when they earn profits, which are payments of cash or additional stock to shareholders. You can invest in large baskets of stock through mutual funds and exchange-traded funds (ETFs). These funds pool investor cash and use it to buy stocks or other assets. Many mutual funds require low initial investments, and you can buy as little as a single share of an ETF.
Other Types of Investments
Governments and corporations borrow money by issuing bonds, which pay cash interest and repay their face values at a future time known as the maturity date. Many bonds have a face value of $1,000, but you might pay a different amount to buy them. For example, if you buy a 3-percent $1,000 bond for $950 and hold it until it matures, you'll collect $30 in interest payments every year and a $50 profit on the maturity date. Other types of investments include precious metals, real estate, collectibles, commodities and financial contracts such as futures and options.
Just About Anyone Can Invest
According to a 2014 survey by Wells Fargo Bank, 59 percent of people in the millennial generation -- born roughly between 1980 and 2000 -- think the stock market is the best place to invest for retirement. Investments are available to everyone, even folks on modest budgets. For example, you can buy a few shares of stock or mutual fund at a time to build up your investments. To do so, you'll need to set up one or more accounts with a broker, a mutual fund company or a corporation that sells its shares directly to the public. You can also invest through individual retirement accounts, annuities and employer pension funds. Quicken allows you to set up your investment accounts and then automatically track your holdings, update prices, record transactions and report on gains and losses, which you'll need to include in your tax return.