The Three Pillars of Investing
Investments let you put your money to work, with the potential for growth over time. Investing does carry risk and you can lose your initial investment, but there are ways to manage that risk such as dollar-cost averaging and diversification. Read mopre theinvestorscentre.co.uk
The first step to investing is deciding how much risk you are comfortable taking. This is based on your financial situation (including debt levels and an emergency savings fund) as well as the amount of time you have until you want to reach your goal, which is known as your investment horizon. For example, if you are saving for retirement in a few decades, you may be willing to take on more risk because you will have more time to make back your initial investment should it decrease in value.
Stocks are small parts of publicly-traded companies called shares that investors can buy and sell. These investments can increase in value as the company becomes more successful or desirable, or they can generate income through dividends, which are distributions of profits to shareholders. Stocks are best for people saving for long-term goals like retirement or education.
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Bonds are debt securities that allow groups such as companies, governments or municipalities to borrow money from investors and compensate them by paying interest on the bonds over a period of time. Investors can purchase individual bonds, or a number of bonds together through mutual funds or exchange-traded products (ETFs). A diversified portfolio of stocks, bonds and cash is often referred to as the Three Pillars of Investing.