The Basics of Investing Explained

It might seem like the world of finance is hard to understand, but the truth is that, although it is very complex today, the basics are logical and easy to comprehend.  The basic foundation of finance is investments. Investments are taking an amount of money, putting into some business or anything else where there is a possibility of income, and making money with your initial amount of money. One simple example which many people come in contact with is real estate as an investment. A person purchases a house for a certain amount of money, and then after some amount of time he sells the house for more than he paid. That was an investment because the money he ended up with was more than what he began with.

The initial sum of money is called the capital, and that capital is said to work for the investor. Sometimes the money can earn interest, such as when a bank uses the money of its customers to invest, and the bank pays a certain amount of interest to persuade it customers to keep the money in the bank. People can also invest in businesses through the purchase of stocks in a company. In this way there are two possible ways to make a profit. The company pays interest to its shareholders to induce them to hold on to their stocks and as a way to share the profits of the business, but the value of the business itself can increase, making the company’s stocks more valuable.  When the investor sells his shares, he will get more money than he paid for the stocks, thus making a profit.