What is investing?

What is investing?

The money you invest is no longer sitting in your checking or savings account. Rather, it's being used to buy assets such as stocks, bonds, or funds, the worth of which can fluctuate based on market conditions.

Common assets to invest are stocks or bonds. A stock is a small piece of ownership in a company. When you buy a stock, you become a shareholder, meaning you own a part of that business. If the company does well, the value of your stock may increase, and you might receive dividends (a share of the profits). But if the company struggles, your stock could drop in value.

A bond is a loan you give to a company or government. In return, they promise to pay you back later with regular interest payments along the way. It's like lending money to a friend who agrees to pay you back with extra as a thank-you. Bonds are usually less risky than stocks, but their returns are also generally lower.

In other words, stocks tend to fluctuate more in value than bonds, which are generally more stable. Besides stocks and bonds, you can invest in almost anything—like sneakers, whiskey, gold, cryptocurrency, or antiques.

Indirect investing

Many people invest without even realising it. For example, if you buy a house, you’re investing. Every month, you pay a part of your mortgage, with the goal of fully owning your house someday—hoping that it will be worth more in the future.

Another common form of indirect investing is pension saving through your employer. A portion of your salary is automatically set aside into a pension fund, where professional investors manage and invest the money. Once you reach retirement age, you receive monthly payouts from your accumulated pension savings.

Starting to invest

If you decide you'd like to start investing, you need to think carefully about what to invest in and whether you want to do it actively or passively. For instance, how much time, effort and risk are you willing to put towards your investing practice?

• Active investing means choosing exactly which stocks or assets to buy and sell yourself. Active investors generally operate on the belief that they can beat the market by making smart trades. 
• Passive investing focuses on long-term growth. Instead of picking individual stocks, you invest in a broad market portfolio, often through an index fund or ETF. This approach spreads risk and follows the average market return rather than trying to outperform it.

A long-term strategy

As we mentioned, some people try to make quick profits by frequently buying and selling stocks, otherwise known as active investing. In order to do this, an investor must have a high appetite for risk and a comprehensive understanding of the stock market and investing concepts. Associated costs are also often higher.

For those with less time and knowledge on their hands, who might prefer to operate in the less risky arena, it's common to focus instead on broad market diversification, low costs, and long-term growth. This type of investing involves spreading your money across many stocks and bonds and holding on for the long haul—not just for a few months, but for years, often a decade or more. This is often referred to as the buy-and-hold strategy.

Investing with Peaks

With Peaks, you can start investing easily, even if you have little to no experience. The readymade Peaks portfolios allows you to invest in sustainable index funds, which contain hundreds of stocks worldwide and European bonds. This broad diversification reduces risk and helps you follow the average market return.

Investing always comes with ups and downs—even when using Peaks. However, history shows that the global economy tends to grow over time. If the economy grows, so do your investments.

Patience is key. The longer you invest, the greater the chance of earning a solid return—and that’s the reason people invest in the first place: to make more out of their money.

Important note: Investing involves risks, and you could lose (part of) your investment. Also, past performance is no guarantee of future results.