On and off over the next few weeks I am going to write bits and pieces that together covers something we’ll call the ‘Mechanics of Investing’. This all for the purpose of making some things seem simpler.
Investing could be seen as committing your money to somewhere with the expectation of future returns. Returns in the form of what? There are many different views or expectations or understandings of this point.
There are really only two forms of investments: debt or equity.
Debt is where you lend your money out. This could be to a bank in the form of deposits – savings accounts, money market accounts – and then you earn income in the form of interest, or you lend it to governments or corporations in the form of bonds and also get paid back through earning interest.
Equity means you are buying into an enterprise, into a company, through listed shares on stock markets, either directly or through unit trust funds. Here you share in the profits and growth of the company and you might also earn income called dividends.
That’s it for this week.