Lending and owning: The underlying principles of investing

Julie Brownlee, Fsp Invest, 20 Feb. 2014

Tags: investing, lending, owning, making money, money, principles of investing, buy, shares, stock market, art, gold, risk, lend, interest, bonds, bank account, assets,

When you invest, you want to use your money to make more money. Think about your job; you work in exchange for your salary. With investing, you hope that you’ll make more cash from your cash. When you invest, you have two main ways of making money from money: Lending and owning. Let’s take a closer look at the two basic principles of investing…

Lending and owning are at the basis of every type of investment you can hold, John Stepek in Money Week explains…

Let’s take a look at how these two basic principles work.

How you can lend money to make money

By lending money to someone else, you can make money. This is in the form of interest payments.

For example, you could lend money to the South African government by buying retail savings bonds for instance.

Lending also includes putting your money into a bank account. You may think of it as saving, but you’re lending your cash to the bank. The bank then pays you interest in return.

Generally speaking, lending your money to make money tends to be less risky than ownership…

How you can buy something to make money

By using your money to buy something you can become an owner or part owner of something. And you buy something in the hope that its value will rise.

For example, buying shares in a company listed on the stock market, art, physical gold, etc.

Generally speaking, buying something to make money is more risky than lending money to make money.

The different risk that accompanies different assets is something you need to think about when you’re building your portfolio. You want to spread your risk by investing in different assets.

So there you have it, the two basic principles of investing.

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