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How Investing Works

How Investing WorksIt can seem complicated but learning how investing works is pretty straight forward. This article will be addressing how investing works in regards to the stock market not other areas such as real estate, we’ll leave that for another time.

Now investing in the stock market basically boils down to this; you’re giving a company money to use to grow their business and as it grows your shares (money) will as well. For example if a company is worth a hundred dollars and has 100 shares of stock they would be worth one dollar per share. So if you give the business fifty dollar you now own half of the company.

Now lets say a year later the company grows with the help of your money and is now worth two hundred dollars. Your investment of fifty dollars is now worth one hundred if you were to sell it.

It’s Just Like Buying a Business! That’s How Investing Works.

In essence you’re buying a percentage of the company at a set price and whether the company earns more money or not will determine the value of your investment just like the example above. It’s just like owning a business only you don’t have to help with the day to day operations.

That’s also a great way to look at companies you’re interested in investing you money with as well. Think of them as if it’s a company you’re thinking about buying outright. Odds are if you do your research and would still go ahead and buy it than it will be a great investment for you. Of course there’s a lot more to investing but that pretty much covers the basics in regards to how investing works.

 

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