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Investing: Definition and types
GlossaryWhat is investing?
Investing is the strategic use of resources, such as money, time, knowledge or manpower, with the expectation that these efforts will yield a positive return or increase in value in the future. You could think of doing up your house or taking a training course to improve your skills.
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What is investing in a financial sense?
In a financial sense, investing is the deployment of capital (money) for the purchase of assets or financial instruments. The goal is for this capital to increase in value in the future. An investment can generate returns, such as interest, dividend or capital appreciation. But be aware, the investment can also decrease in value.
The origin of investing
Investing, as we know it today, has a rich history beginning in the seventeenth century. To pay for Dutch trade voyages to Asia, investors were sought. In exchange, these investors received a share of the profits upon the return of the trading ships. The Dutch East India Company (VOC) is therefore seen as the very first company in the world to issue stocks. With this, Amsterdam became home to the first stock exchange in the world.
What is the goal of investing?
The goal of investing lies in the future. By investing in assets and various financial instruments, it is possible to achieve returns. Investing also offers the chance to support companies, such as promising start-ups, in their growth. This allows you to not only benefit from the company’s success but also contribute to innovation and economic progress. In short, investing is a way to grow your wealth while making an impact on the world around you.
What is the difference between stock market investing and general investing?
The concepts of stock market investing and general investing are sometimes used interchangeably. That is logical, as they share similarities. Yet they are not exactly the same. Stock market investing is a form of investing money with the aim of achieving financial returns, often via investment products such as stocks, ETFs and ETCs. The investor usually has little to no influence on business operations. General investing is a broader concept. You can invest not only money but also time, knowledge and manpower to create value. For example, you can help a company grow by investing in business assets like new machinery or staff training. The investor often plays a more active role.
What can you invest in?
There are many ways you can invest, depending on your goals and risk tolerance. At BUX, you can invest by trading in stocks, ETFs and ETCs. Let’s take a look at those.
1. Investing in stocks
When you buy (fractional) stocks, you are investing in companies. You become a co-owner of a publicly traded company. If the company makes a profit and the stocks rise in value, you benefit in the form of capital gains or dividends.
More about investing in stocks
2. Investing in ETFs
An ETF (Exchange Traded Fund) is an index fund that is traded on the stock exchange. With a single ETF, you invest in dozens to hundreds of companies at once. Transaction costs are low, and you build a diversified portfolio.
3. Investing in ETCs
An ETC (Exchange Traded Commodity) has (synthetic) commodities like gold as the underlying investment. So you can invest in commodities without physically owning them. The value of an ETC changes along with the price fluctuations of the commodities.
4. Other ways of investing
Besides the investments above, there are other ways to invest your money. These are:
- Savings account: A savings account is a safe way to keep your savings in exchange for variable interest. Due to high inflation and falling interest rates, saving currently offers little return.
- Bonds: With bonds, you lend money to a company or government (loan) in exchange for interest and the invested capital.
- Funds: A fund manager collects money from investors to invest in a mix of investment products. They then try to ‘beat’ the products in the basket.
- Options: Options are contracts that give you the right to buy or sell an underlying asset at a predetermined price within a certain timeframe.
- (Recreational) real estate: You buy property such as homes or commercial buildings to generate passive income via rent, long-term appreciation or real estate funds.
- Collectibles: Collectibles, such as art, are physical items that can increase in value as they become rarer or more sought-after.
- Crypto: Cryptocurrencies use blockchain technology for secure and transparent transactions. Via staking, you can earn a type of interest.
- Private equity: You invest in non-listed companies via a fund. Over time, you can sell your stake for a good return.
Where is the best place to invest money?
What is best for you to invest in depends on your financial situation, risk appetite, knowledge and time horizon among other things. It is advisable to spread your portfolio and invest in a mix of different products so that you can limit risks and benefit from the growth of your investment in the long term.
What to invest in directly as a beginner?
If you are starting to invest as a beginner, you can start with simple investment products like ETFs. These give you the chance to learn how to invest in a diversified way. The most important thing is to start slowly, keep an eye on the financial markets and adjust your strategy over time as you gain more experience.
How can I invest money?
You can invest money via a broker (investment platform) like BUX. With us, you can invest in a diverse range of stocks, ETFs and ETCs. With the BUX Investment Plan, you can start investing money in just a few steps. Choose the amount you want to deposit each month (starting from €10), select the investment products you want to invest in and set your goal. We invest automatically for you — every month, on the day you choose. This way, you can work on your returns.
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Investing involves risks. You can lose your investment.
All views, opinions, and analyses in this article should not be read as personal investment advice. Individual investors should make their own decisions or seek independent advice. This article has not been prepared in accordance with legal requirements designed to promote the independence of investment research and is considered a marketing communication.
