You’ve probably heard the word “investing” plenty of times, whether it was through overhearing a conversation your parents had or somewhere on Reddit. But what does that word actually mean?

Let’s start off with an example

Sam is starting a lemonade stand. His lemonade is becoming super popular in his neighborhood- Sam’s profit is increasing by over $100 a day! Sam’s neighbor, Jack, does some research on Sam’s business and thinks Sam’s business will continue to grow throughout the hot summer. Jack decides he wants in on the profit. Sam offers Jack to own half of his business for $300. Jack takes up this offer and invests $300 in Sam’s lemonade business.

What it means to invest

Investing means putting your money into things that you hope will grow in value. In Jack’s case, he thought that Sam’s lemonade business would keep growing and making more money, so he invested $300 of his money for a stake in the business. When things you have grow in value, your things are worth more- this means that you have more money. So in a nutshell, investing is when you spend your money on things with the hope that those things will become more valuable and make you money.

Financial Assets

Now, what are these magical things that you put your money, or invest, in to make money? We call these things financial assets. Some examples of financial assets include stocks and bonds. Don’t worry, we’ll go over those financial assets, as well as many others, in detail in later articles.

Investing vs. Speculating

It’s very important to understand that when you decide to invest in a financial asset, that decision is based on thoughtful research and knowledge of the asset. When you invest, you are making a well-educated, thoughtful, and knowledge-backed decision. There is a clear difference between investing and speculating. Speculating is when you make decisions to buy financial assets with little to no knowledge or research. An example of speculating is when someone buys a stock only because they heard from a friend it was cool and was going to rise in price, without any research or analysis. Speculating often results in poor decisions and a lot of lost money. That’s why when you invest, it is important to think if you are acting as an investor or a speculator.

Takeaway

Overall, investing is when you purchase financial assets after thoughtfully analyzing the asset. We’ll be having more articles coming up discussing topics including different types of financial assets, how to choose which financial asset to buy, risk, and more!

Thank you for reading this article on TeensInvest.com. If you have any questions, feel free to leave a comment on this post. Please consider filling out this feedback form to let us know how you feel about our content.