what is investing 
investing broadly is putting money to work for a period of time in some sort of project or undertaking to generate positive returns i e profits that exceed the amount of the initial investment it is the act of allocating resources usually capital i e money with the expectation of generating an income profit or gains one can invest in many types of endeavors either directly or indirectly such as using money to start a business or in assets such as real estate in hopes of generating rental income and or reselling it later at a higher price investing also differs from speculation as evidenced by the investor s timeframe speculators are typically looking to gain from short term price fluctuations that occur in weeks days or even minutes investors usually consider that a greater period of time like months or years is needed to generate acceptable returns understanding investinginvesting is to grow one s money over time the core premise of investing is the expectation of a positive return in the form of income or price appreciation with statistical significance the spectrum of assets in which one can invest and earn a return is vast risk and return go hand in hand in investing low risk generally means low expected returns while higher returns are usually accompanied by higher risk at the low risk end of the spectrum are basic investments such as certificates of deposit cds bonds or fixed income instruments are higher up on the risk scale while stocks or equities are regarded as riskier commodities and derivatives are generally considered to be among the riskiest investments one can also invest in something practical such as land real estate or delicate items such as fine art and antiques risk and return expectations can vary widely within the same asset class for example a blue chip that trades on the new york stock exchange will have a very different risk return profile from a micro cap that trades on a small exchange the returns generated by an asset depend on its type for instance many stocks pay quarterly dividends whereas bonds generally pay interest every quarter in many jurisdictions different types of income are taxed at different rates in addition to regular income such as a dividend or interest price appreciation is an important component of return total return from an investment can thus be regarded as the sum of income and capital appreciation standard poor s estimates that from 1926 to 2023 dividends have contributed approximately 32 of total return for the s p 500 while capital gains have contributed 68 capital gains are therefore an important piece of investing 1economists view investing and saving to be two sides of the same coin this is because when you save money by depositing in a bank the bank then lends that money to individuals or companies that want to borrow that money to put it to good use therefore your savings are often someone else s investment types of investmentstoday investment is mostly associated with financial instruments that allow individuals or businesses to raise and deploy capital to firms these firms then rake that capital and use it for growth or profit generating activities while the universe of investments is vast here are the most common types of investments a buyer of a company s stock becomes a fractional owner of that company owners of a company s stock are known as its shareholders they can participate in its growth and success through appreciation in the stock price and regular dividends paid out of the company s profits bonds are debt obligations of entities such as governments municipalities and corporations buying a bond implies that you hold a share of an entity s debt and are entitled to receive periodic interest payments and the return of the bond s face value when it matures funds are pooled instruments managed by investment managers that enable investors to invest in stocks bonds preferred shares commodities etc two of the most common types of funds are mutual funds and exchange traded funds etfs mutual funds do not trade on an exchange and are valued at the end of the trading day etfs trade on stock exchanges and like stocks are valued constantly throughout the trading day mutual funds and etfs can either passively track indices such as the s p 500 or the dow jones industrial average or can be actively managed by fund managers trusts are another type of pooled investment real estate investment trusts reits are one of the most popular in this category reits invest in commercial or residential properties and pay regular distributions to their investors from the rental income received from these properties reits trade on stock exchanges and thus offer their investors the advantage of instant liquidity alternative investments is a catch all category that includes hedge funds and private equity hedge funds are so called because they can limit hedge their investment risks by going long and short on stocks and other investments private equity enables companies to raise capital without going public hedge funds and private equity were typically only available to affluent investors deemed accredited investors who met certain income and net worth requirements however in recent years alternative investments have been introduced in fund formats accessible to retail investors derivatives are financial instruments that derive value from another instrument such as a stock or index options contracts are a popular derivative that gives the buyer the right but not the obligation to buy or sell a security at a fixed price within a specific period derivatives usually employ leverage making them a high risk high reward proposition commodities include metals oil grain animal products financial instruments and currencies they can either be traded through commodity futures agreements to buy or sell a specific quantity of a commodity at a specified price on a particular future date or etfs commodities can be used for hedging risk or speculative purposes comparing investing styleslet s compare a couple of the most common investing styles 