7 What is Investing? When is it appropriate?
Learning Outcomes:
- Define an investment.
- Explain the difference between stocks and bonds.
- Compare and contrast investing and saving.
- Understand the mechanics of investing.
Investing
Before looking at investment planning and strategy, it is important to take a closer look at the galaxy of investments and markets where investing takes place. Understanding how markets work, how different investments work, and how different investors can use investments is critical to understanding how to begin to plan your investment goals and strategies.
You have looked at savings plans and ways to create surplus cash. Investing is primarily about using the capital markets to invest that surplus cash for the longer term. The capital markets developed as a way for buyers to buy liquidity. In Western Europe, where many of our ideas of modern finance began, those early buyers were usually monarchs or members of the nobility raising capital to finance armies and navies to conquer or defend territories or resources. Many devices and markets were used to raise capital, but the two primary methods that have evolved into modern times are the bond and stock markets. For a thorough history of the evolution of finance and financial instruments, see Charles P. Kindleberger’s A Financial History of Western Europe (1984).
In the United States, 47 percent of the adult population owns stocks or bonds, most through retirement accounts (Sabelhaus et al., 2008, p. 1).
(Investment and Markets, n.d.)
Get To Know Investment Terms
Play FINRA’s Learning to Invest Game so that you become more familiar with investment terms.
How Does Investing Differ from Saving?
Watch the video:
In this activity, students will:
- Understand the differences between saving and investing.
- Explore the different goals saving and investing can help achieve.
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How Does Investing Work?
Watch the video:
In this activity, students will:
- Calculate capital gains and capital losses for stock transactions in terms of dollars and percentages.
- Understand how these calculations can help evaluate a stock’s past performance.
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- Saving to build wealth is investing.
- Investing happens over your lifetime.
- Stocks are a type of investment that gives people a share of ownership in a company.
- Stocks offer investors the greatest potential for growth (capital appreciation) over the long haul.
- When you sell a stock for more than you paid for it, that’s called a capital gain. When you sell a stock for less than you paid for it, that’s a capital loss.
Please Provide Feedback
What is one tip that you learned from this chapter?
References
Investment and markets: A brief overview. (n.d.). In Individual Finance (Chap. 12, Investing, Subsection 12.1). LibreTexts: Business.
Kindleberger, C. P. (1984). A Financial history of Western Europe. Allen & Unwin.
Sabelhaus, J., Bogdan, M., & Schrass, D. (2008). Equity and bond ownership in America, 2008. Investment Company Institute [ICI] and Securities Industry and Financial Markets Association [SIFMA]. http://www.ici.org/pdf/rpt_08_equity_owners.pdf
