Investment
Once you have earned enough money to save some and start building up your reserves, you will want to do something with that money other than simply spending it on consumer goods like cars and stereos and shoes. Taking your money from savings and putting that money into something where you expect to get your money back, or hopefully even make a profit where you get more than your original amount of money back, is called making an investment. There are many kinds of investments to make, from stocks to bonds to gold and real estate, and they all carry risk as you search for profit.
Risk is the chance that you will never get your money returned to you. When you make an investment, you will always balance the risk against the amount of money that hope to make on the investment. The less the risk, the less you can expect to make as profit during the investment.
Stocks are pieces of companies. If the company makes money, and is well run, you will typically make money owning the stock for that company. Stock prices go up and down for a wide variety of reasons. One advantage to investing in stocks is that it is very easy to change your mind and sell what you own on short notice, a concept known as liquidity. The more liquid an investment, the easier it is to get out of it and stocks are among the most liquid of all investments.
Bonds are loans that you make to others, usually companies or even whole countries. The U.S., for example, issues bonds when it needs to borrow money. US bonds are considered to be the safest in the world, meaning there is little or no chance that you will not get your money back. Because of the low level of risk involved, you will get paid only a very small amount of interest for making the loan. Companies also issue bonds, and your chances of getting your money back depends on the ongoing strength of the company over time.
Gold is an example of a commodity, just like crude oil or corn. Commodity prices are based purely on supply and demand. If there is a great desire for the commodity (for example, such as when people want to invest in gold), or a shortage of it (for example, due to a drought for farmers), the price will rise. If there is an overabundance of a commodity, more supply than demand, then the price will fall. At their core, all markets, whether they are for bonds or stocks or commodities, will rise or fall based on supply and demand and they can rise or fall very quickly when supply and demand are strongly out of balance.
Real estate is physical land such as a house or office building. Undeveloped land, condominiums and apartment buildings are also real estate. Because people always need places to live and work, real estate is often considered the best investment over a long period of time. But as with any investment, the timing of when you buy or sell a property is the most important factor in whether or not you make money on the investment. There is still an awful lot of undeveloped land in the world and in the U.S. and it will be a very long time until the supply runs short, so as an investment, real estate is less of a commodity than it is dependent on the condition of the overall worldwide economy, much as is true with the stock market.
CDs are Certificates of Deposit and you invest in them directly through your bank. They are considered to be even safer than US Treasury Bonds and they pay very low interest. They are typically used by people who simply want to move money out of their checking or savings accounts and just need a place to keep that money as time goes by.
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Investment
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