How Investments Make Money
Historically, investing has proven itself an excellent way to increase your wealth over time. It is strongly favored over basic savings accounts by financial experts and advisors around the world. Investing has the potential to bring financial goals like owning a home and retirement within reach.
But how exactly does the concept of ‘investing’ earn you more money? How do you turn your hard-earned dollars into more dollars? This article will highlight the process of investing, the different financial vehicles that you can utilize, and how you can leverage your investments to make more money.
How Does Investing Work
Investing involves committing money in order to earn a financial return. In other words, investing is a process in which you use money to generate more money. There are various ways to invest your assets, all of which entail you giving your money to a company, government, or other entity, hoping that they will return your money and then some in the future.
Most investment portfolios primarily consist of stocks and bonds. Purchasing a stock means that you own a portion of the company, no matter how small it is. This is a form of equity investing, and it may allow you to receive a share of the profits. Buying a bond is a type of fixed income in which you loan your money to the company. The bond issuer promises to pay you back your initial investment plus interest along the way.
There are many other types of investments that you can put your money into; mutual funds, real estate, commodities, and ETFs, to name a few.
How Does Investing Make You Money
Investments make money in two different ways; they either increase in value or payout income. You have the potential to earn money on your investments when their value goes up. Many factors can affect the value of a company; growth, innovation, regulatory changes, and excellent management are just a few.
For example, let’s assume the market price of ABC Corp’s stock is $10 per share, and you purchase 10 shares. The value of your investment is $100. The following year, ABC Corp experience record sales, and the stock’s market price increases to $13 per share. Since you still own 10 shares and they have each increased in value by $3, you have gained $30; your money just made money.
Some investments will also pay out money, commonly in the form of dividends. A dividend is a form of cash compensation that a company issues to its shareholders. Interest payments are another way in which investments can pay you money. For example, a bond will have a stated interest rate attached to it, and you will receive that interest amount at the indicated intervals.
How to Make Money Through Investments
Investments have the potential to earn you a significant amount of money if appropriately structured and monitored. Taking advantage of the power of compound interest allows your funds to grow at an accelerated rate, especially if you have long-term investments.
Different investments offer different returns. Some pay income, others appreciate, and there are even opportunities for significant tax efficiency with certain investments. These various factors constitute your total return which ultimately is how you make money through investing.
The best way to ensure you have a robust financial plan and investment strategy is to source the help of a professional. Creative Financial Group has been assisting clients since 2003 to develop best-in-class investment portfolios that support their goals, values, and preferences. Our firm’s knowledge and expertise will ensure you feel confident about your financial future.
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