Investing has become an essential part of personal finance over the last couple of decades, with the rise of digital platforms increasing access to financial markets. Gone are the days when stock markets were exclusive to only high-net-worth individuals and professional analysts, as individuals from all walks of life can now participate in the world of investing with the click of a button.
However, for those new to the game, the sheer complexity and array of options can be daunting. Service providers often use unfamiliar jargon and formulas when discussing investment opportunities, making markets appear impenetrable to beginners.
To counter this, we have put together a guide that aims to demystify the investing world and provide our readers with a clear understanding of the principles, strategies, and best practices necessary to navigate modern financial markets.
What do we mean by investing?
In simple terms, investing is the process of allocating your assets with the aim of generating a return over time. This return can take various forms, such as income in the form of dividends from stocks and interest from bonds, or capital appreciation, which is the increase in the value of an asset over time. Investing should be distinguished from saving, as this typically involves setting aside a portion of your income for future use, often in a low-risk, easily accessible account.
Consequently, investing requires a clear understanding of an individual’s financial goals, risk tolerance, and time horizon before starting. It involves selecting from diverse assets, such as equities; which represent ownership in a company, bonds; which are essentially loans to a company or government, real estate; which includes diversified pools of properties like houses, apartments, and commercial buildings, and alternative investments; which can cover commodities, hedge funds, or private equity. Each of these asset classes has distinct characteristics, benefits, and risks, making them more suitable for certain investors and not suitable for others.
What are the benefits of investing
So, why invest? The answer lies in the considerable financial benefits that investing can deliver:
Wealth creation: Investing offers the potential to grow your wealth over time, providing a means to achieve long-term financial goals, such as retirement or purchasing a property.
Inflation protection: By investing in assets that historically perform well in inflationary environments, individuals can protect their money's purchasing power and maintain their living standards over the years.
Achieving financial goals: Investing can help you achieve specific economic objectives, such as funding a change in lifestyle or securing a comfortable retirement.
What are we going to cover in this series?
This guide will take you on an introductory trip through the investing world by covering the essential concepts, strategies, opportunities, and best practices necessary to get started. To do this, we have structured the series into manageable chapters, each focusing on a specific aspect of investing or personal finance. These chapters will range from setting investment goals and understanding risk to advanced investing concepts and portfolio management.
We have drawn on the expertise of seasoned investment professionals and followed industry-standard guidance to ensure that key concepts are illustrated using real-world examples and accompanied by practical steps. We want to help our readers gain the knowledge and confidence to take control of their financial futures by making informed investment decisions that align with their unique goals and risk appetite.
Now that we have provided an overview of what we mean by investing and the value it can bring to your personal finance journey, the next chapter will explore the importance of setting investment goals and understanding risk tolerance, both of which are key to navigating the markets confidently.