Investing is the practice of putting money into investment assets for a long period of time, i.e. at least 5 years. The idea is usually to generate attractive returns or make a profit. Your investments go through the stock market, where you buy shares, for example. Each share represents a ‘piece’ of a company. Alternatively, you can invest your money in bonds, which basically means that you’re lending your money to a government or company. In exchange for lending them money, the government or company in question pays you interest.
Investing is a way to put your money to work. It’s not without risk, though. Your investments can (temporarily) go up or down in value, depending on the company’s performance, market sentiment, and how the economy is going. Despite the risk involved, investing for a period of over 10 years generally delivers capital growth, so it can certainly be worth your while.
What is happening on the stock markets is reported on the news every day. Luckily, there is no need to stay on top of all that news. What you do have to put some thought into is your investment goal, how long you want to invest for, and how much you want to invest. Knowledge of the basics of investing will help you make smart choices. Luckily, ABN AMRO can help you with that. Following these 8 steps is a good start.
A company issues shares to raise funds for new activities and investments. When you buy a share, you become the co-owner of the company. You will share in the company’s profit, but also have to bear any losses.
When investing in an investment fund, your money is invested along with that of the fund’s many other unit holders. The fund spreads its investments, investing in shares,
An exchange traded fund (ETF) is similar to an investment fund, because it also spreads investments. Where they differ, however, is in that most ETFs manage their portfolio passively. Instead of seeking to outperform a benchmark, they track it, which is why they are also referred to as ‘trackers’.
A company issues shares to raise funds for new activities and investments. When you buy a share, you become the co-owner of the company. You will share in the company’s profit, but also have to bear any losses.
When investing in an investment fund, your money is invested along with that of the fund’s many other unit holders. The fund spreads its investments, investing in shares,
An exchange traded fund (ETF) is similar to an investment fund, because it also spreads investments. Where they differ, however, is in that most ETFs manage their portfolio passively. Instead of seeking to outperform a benchmark, they track it, which is why they are also referred to as ‘trackers’.
The value of a share depends on the company’s performance, the outlook for the economy, and supply and demand on the stock market. These factors can cause the price of a share to change rapidly sometimes.
The price of a fund unit is based on the total value of the underlying holdings. At most investment funds, the fund manager sets a unit price just once a day. This is called the cut-off time. If the total value of the underlying holdings goes up, the value of a fund unit also rises. And the value of a unit will drop if the total value of the underlying holdings goes down.
Like with an investment fund, the value of the underlying holdings is the basis for the price of an ETF’s unit. But unlike most investment funds, ETFs can be traded on the stock market all day long. The unit price is determined by the ratio between supply and demand at any given time during a trading day.
The value of a share depends on the company’s performance, the outlook for the economy, and supply and demand on the stock market. These factors can cause the price of a share to change rapidly sometimes.
The price of a fund unit is based on the total value of the underlying holdings. At most investment funds, the fund manager sets a unit price just once a day. This is called the cut-off time. If the total value of the underlying holdings goes up, the value of a fund unit also rises. And the value of a unit will drop if the total value of the underlying holdings goes down.
Like with an investment fund, the value of the underlying holdings is the basis for the price of an ETF’s unit. But unlike most investment funds, ETFs can be traded on the stock market all day long. The unit price is determined by the ratio between supply and demand at any given time during a trading day.
Share prices can be very volatile. If the company in which you hold shares has hit a rough patch, the value of your shares will generally go down. And if the company goes bankrupt, your shares will in most cases lose their value.
Investing in an investment fund lets you spread the risk in your investment portfolio. This means that investing in an investment fund often involves less risk than investing in shares. The fund’s risk is also determined by the type of investments. There tends to be less risk attached to bond funds compared to equities funds, for example.
ETFs also offer a way to spread risk in your portfolio. Like shares, ETFs have a bid price (the price at which investors can sell units in the ETF) and an ask price (the price at which investors can buy units in the ETF). The difference between the two prices is called the ‘bid/ask spread,’ which can grow in a volatile market. Due to the fact that an ETF keeps tracking the benchmark and due to supply and demand, unit prices of most ETFs may change quicker and more sharply than those of similar investment funds. If the tracked benchmark drops, the price of your ETF will also drop. Like with shares, the price of ETF units can, consequently, be highly volatile.
Share prices can be very volatile. If the company in which you hold shares has hit a rough patch, the value of your shares will generally go down. And if the company goes bankrupt, your shares will in most cases lose their value.
Investing in an investment fund lets you spread the risk in your investment portfolio. This means that investing in an investment fund often involves less risk than investing in shares. The fund’s risk is also determined by the type of investments. There tends to be less risk attached to bond funds compared to equities funds, for example.
ETFs also offer a way to spread risk in your portfolio. Like shares, ETFs have a bid price (the price at which investors can sell units in the ETF) and an ask price (the price at which investors can buy units in the ETF). The difference between the two prices is called the ‘bid/ask spread,’ which can grow in a volatile market. Due to the fact that an ETF keeps tracking the benchmark and due to supply and demand, unit prices of most ETFs may change quicker and more sharply than those of similar investment funds. If the tracked benchmark drops, the price of your ETF will also drop. Like with shares, the price of ETF units can, consequently, be highly volatile.
If a company turns a profit, the price of its shares will usually go up. Companies may choose to pay part of their profit out to their shareholders, in which case you will receive a dividend. Some companies pay a dividend in cash, while others pay out in shares. The returns on a share are, consequently, made up of the value increase of the share and possibly a dividend as well.
An equities fund may receive dividends on the shares in which they invest. And most bond funds receive a coupon (interest payment) on the bonds in which they invest. Some investment funds will pay these yields out to you, i.e. they pay you a dividend. You can choose to either receive the dividend in cash or have us automatically reinvest it into the fund. The possible returns from an investment fund are, consequently, made up of the value increase of the fund and possibly a dividend as well.
An ETF may also receive dividends (on the shares in which the ETF invests) and/or coupons (interest payments) on bonds in which it invests). The ETF may pass these on to you or reinvest them in the fund. The possible returns on an ETF are, consequently, made up of the value increase of the fund plus dividends and/or coupons.
If a company turns a profit, the price of its shares will usually go up. Companies may choose to pay part of their profit out to their shareholders, in which case you will receive a dividend. Some companies pay a dividend in cash, while others pay out in shares. The returns on a share are, consequently, made up of the value increase of the share and possibly a dividend as well.
An equities fund may receive dividends on the shares in which they invest. And most bond funds receive a coupon (interest payment) on the bonds in which they invest. Some investment funds will pay these yields out to you, i.e. they pay you a dividend. You can choose to either receive the dividend in cash or have us automatically reinvest it into the fund. The possible returns from an investment fund are, consequently, made up of the value increase of the fund and possibly a dividend as well.
An ETF may also receive dividends (on the shares in which the ETF invests) and/or coupons (interest payments) on bonds in which it invests). The ETF may pass these on to you or reinvest them in the fund. The possible returns on an ETF are, consequently, made up of the value increase of the fund plus dividends and/or coupons.
Let’s take a look at you. What are you like when it comes to money? Are you patient enough? What would be a better fit for you, active investing or passive investing? And how do you deal with risk?
Investing involves risks. You could lose (some of) the money you invested. If you are going to invest, it is important that you are aware of this. Invest with money you can spare. Read more about the risks associated with investments.
