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Explanation of Investing Your Money - Personal Finances: Strategies in Handling Your Money. Also refer to savings, bank account, certificate of deposit, CD, bond, property, real estate, silver, collectibles, stocks, mutual funds, Ron Kurtus, School for Champions. Copyright © Restrictions

Investing Your Money

by Ron Kurtus (21 May 2007)

An investment is a deposit or purchase that you assume will provide you with a profit or return on the investment. You can deposit money in the bank or make purchases of CDs or bonds that pay interest. You can also purchase items or real estate with the intention of selling them later as their value increases. Likewise, you can purchase stocks in a company to keep until their value or selling price reaches a certain level.

Questions you may have include:

• What are savings investments?
• How do you invest in property?
• What is investment in stocks?

This lesson will answer those questions. There is a mini-quiz near the end of the lesson.

Savings investments

Although you do get some interest from a savings account in a bank, you usually don't think of it as an investment. Rather, you usually consider it a way to save your money before spending it.

There are other types of savings accounts where you make enough interest to consider it a form of investment. One example is a Certificate of Deposit or CD. With these accounts, you usually cannot withdraw the money whenever you want. Often you must keep the money in the account for a set amount of time.

You can also invest in bonds that will pay a set interested rate over a period of time. You cannot cash in the bonds until they mature.

With savings accounts and investments, the bank, credit union or other organization uses your money to provide loans to other people, while with bonds the organization uses the money to fund some project.

Buying property

One form of investment is to purchase real estate property, with the assumption that the value of the property will increase over time. In some cases, you might buy a rental property, where you can collect rent until you decide to sell the property. With the rapidly increasing prices of homes, buying and selling real estate can be a lucrative business.

One downside is that real estate investment requires a considerable amount of cash, and usually the buyer must take out a loan and pay interest on that loan. Also, there is a risk that you will not be able to recoup your investment when you sell the property.

Another form of investment in property is to purchase collectible items that may increase in value. People collect paintings, stamps, baseball cards and even rare metals, with the assumption that they will increase in value. They often keep these items as investments over a long period of time.

One example on the perils of purchasing such items concerns buying silver as an investment. In 1970, the cost of 1 ounce of silver was $1.64. By 1980, the value increased to $15.65. Owners of silver saw a 950% profit in the 10 years. Many investors jumped on the wagon, only to see the price drop to $4.17 by 1990. The present price is about $12.60.

Buying stocks

When you purchase stocks in a company, you are buying a part ownership in that company. Typically, your share in the company is quite small, but the value of your stocks may increase as the company grows and prospers.many companies do yearly dividends as part of their profits to their stockholders.

As you keep the stocks and their value increases over price you paid for them, your investment will also increases. When you sell the stocks, you can see a profit. Of course, there is a risk and the value of the stocks may, such that you lose money on your investment.

You can also invest in mutual funds, which in turn invest your money into a cross section of stocks in order to yield an average return.

Summary

You can invest your money by depositing it in the bank or making purchases of CDs or bonds that pay interest. You can also purchase property with the intention of selling them later as their value increases. Likewise, you can purchase stocks in a company to keep until their value or selling price reaches a certain level.

Answers to Readers' Questions

Resources

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Mini-quiz to check your understanding

1. Why would you buy bonds instead of putting your money in the bank?

2. When should you consider investing in real estate?

3. Why do so many people play the stock market?

If you got all three correct, you are on your way to becoming a champion in Personal Finances. If you had problems, you had better look over the material again.

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