Investing 101: A Tutorial for Beginner Investors

Investing 101: A Tutorial for Beginner Investors

to understand what investing is, what it means and how time earns money 
through compounding. But it doesn't stop there. This tutorial will also teach you 
about the building blocks of the investing world and the markets, give you some 
insight into techniques and strategies and help you think about which investing 
strategies suit you best. So do yourself a lifelong favor and keep reading. 
One last thing: remember: there are no "stupid" questions. If after reading this 
tutorial you still have unanswered questions, we'd love to hear from you.
What Is Investing?
What Is Investing?
Investing (n-v st ing)
The act of committing money or capital to an endeavor with the expectation of 
obtaining an additional income or profit. 
It's actually pretty simple: investing means putting your money to work for you. 
Essentially, it's a different way to think about how to make money. Growing up, 
most of us were taught that you can earn an income only by getting a job and 
working. And that's exactly what most of us do. There's one big problem with this:
if you want more money, you have to work more hours. However, there is a limit 
to how many hours a day we can work, not to mention the fact that having a 
bunch of money is no fun if we don't have the leisure time to enjoy it 
You can't create a duplicate of yourself to increase your working time, so 
instead, you need to send an extension of yourself - your money - to work. That 
way, while you are putting in hours for your employer, or even mowing your lawn, 
sleeping, reading the paper or socializing with friends, you can also be earning 
money elsewhere. Quite simply, making your money work for you maximizes 
your earning potential whether or not you receive a raise, decide to work 
overtime or look for a higher-paying job. 
There are many different ways you can go about making an investment. This 
includes putting money into stocks, bonds, mutual funds, or real estate (among 
many other things), or starting your own business. Sometimes people refer to 
these options as "investment vehicles," which is just another way of saying "a 
way to invest." Each of these vehicles has positives and negatives, which we'll 
discuss in a later section of this tutorial. The point is that it doesn't matter which 
method you choose for investing your money, the goal is always to put your 
money to work so it earns you an additional profit. Even though this is a simple 
idea, it's the most important concept for you to understand. 
What Investing Is Not

Investing is not gambling. Gambling is putting money at risk by betting on an 
uncertain outcome with the hope that you might win money. Part of the confusion 
between investing and gambling, however, may come from the way some people 
use investment vehicles. For example, it could be argued that buying a stock 
based on a "hot tip" you heard at the water cooler is essentially the same as 
placing a bet at a casino. 
True investing doesn't happen without some action on your part. A "real" investor 
does not simply throw his or her money at any random investment; he or she 
performs thorough analysis and commits capital only when there is a reasonable 
expectation of profit. Yes, there still is risk, and there are no guarantees, but 
investing is more than simply hoping Lady Luck is on your side. 
Why Bother Investing?
Obviously, everybody wants more money. It's pretty easy to understand that 
people invest because they want to increase their personal freedom, sense of 
security and ability to afford the things they want in life. 
However, investing is becoming more of a necessity. The days when everyone 
worked the same job for 30 years and then retired to a nice fat pension are gone. 
For average people, investing is not so much a helpful tool as the only way they 
can retire and maintain their present lifestyle. 
Whether you live in the U.S., Canada, or pretty much any other country in the 
industrialized Western world, governments are tightening their belts. Almost 
without exception, the responsibility of planning for retirement is shifting away 
from the state and towards the individual. There is much debate over how safe 
our old-age pension programs will be over the next 20, 30 and 50 years. But why 
leave it to chance? By planning ahead you can ensure financial stability during 
your retirement
Now that you have a general idea of what investing is and why you should do it, 
it's time to learn about how investing lets you take advantage of one of the 
miracles of mathematics: compound interest.
The Concept Of Compounding
Albert Einstein called compound interest "the greatest mathematical discovery of 
all time". We think this is true partly because, unlike the trigonometry or calculus 
you studied back in high school, compounding can be applied to everyday life. 
The wonder of compounding (sometimes called "compound interest") transforms 
your working money into a state-of-the-art, highly powerful income-generating 
tool. Compounding is the process of generating earnings on an asset's

Investing 101: A Tutorial for Beginner Investors