How does investing work?

Welcome to Ep.2 of understanding the foundations of investing.

In simple, investing works when you buy an asset at a low price and sell it at a higher price. This kind of return on your investment called a CAPITAL GAIN.

In order for you to manage an investment and gain profit from your investment you must understand your capital gains. Understanding your capital gains will give you the opportunity to sell and generate profit from your asset. When an investment gains value from the time that you buy it and the time that you sell it, it’s also known as 'appreciation'

Investment Examples : Stocks, Bonds, Real Estate & Commodities.

• A share of a stock can appreciate : if a company creates an amazing new product that generates sales. This could increase the company’s revenue and raise the stock’s value on the market. (Stocks are shares of ownership in publicly traded companies). (Also stocks are also known as equities)
• A Corporate Bond could appreciate when it pays 5% annual interest and the same company issues new bonds that only offer 4% interest.This means yours is more valuable as you subscribed at a great time.
• A commodity like gold might appreciate. Why would gold appreciate : War can have an impact. When people start to fear that their assets will lose value, often the price of gold rises. Inflation impacts the rise of gold, if the U.S. Dollar loses value it drives up demand for gold. Also Jewelry demand and reserves can drive the price of commodities (reserves-resources available)
• Real Estate can appreciate in value : Why? From renovations, or the specific area becomes popular amongst the population and theres a lack of properties available.

There's different ways to invest.

Investing works when you buy and hold assets that generate income. The goal of income investing is to buy assets that generate cash flow over time and hold onto them without selling.

However sometimes capital gains can influence an investor to sell their asset for a one time big opportunity to profit from their asset. This can be a risk if the one time profit seems to be worthy of a sale and after the asset is sold the asset becomes more valuable. The investor might lose out on accumulating more wealth. However you cannot have rewards without risk!

If you learned something from this? I would love to know! Please feel free to share or reach out especially if you're new to the investment industry.

I'm always happy to help,

Happy Investing

Sophia!