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How to Invest Money

SamanthaVin | Jul 29, 2009 |

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There are many ways to invest money because there are many types of investments out there. An investment is something that you put money into expecting more than the original investment in return. If you lend your friend $100 and they promise to pay you back $120 and they do, you have make $20. You have made and investment and earned from it. Here we will discuss a few of the most common ways to make money.

The two main ways to invest are equity investments and debt investments. An equity investment is when you become the owner of something. Stocks are a very good example. When you buy 100 shares of Google, you become part owner of Google and are referred to as a shareholder. If you start a partnership with 5 other people and you put in $40,000, you become part owner of the company.

To make money with equity, you have to get back more than you bought for. With the 100 shares of stock you bought, you would have to sell it for more than you bought it. Let's say they cost you $300 per share for a total of $30,000. If you then sell them for $350 per share for a total of $35,000, you have made a profit of $5,000. If you are a partner of a partnership, you can choose do withdraw money from the partnership. You can either take a salary from it which is all profit, especially if you haven't done any work, or you can get money from it through an agreed upon manner.

Debt investments include bonds, savings accounts, etc. You are lending money to someone who promises you they will pay you more. This "more" is an interest rate. If you buy a $1,000 bond with a 4% interest rate and 1 year to maturity, in one year, you will be paid $1,040 with a $40 profit. With bonds you can also trade them as you do stocks. Buy them and then sell them to someone else before maturity for a higher price.

Of course, there are many more complexities to both of these and there are other types of investments, but these are the bare basics on how to invest money. Derivatives are another type of investment that is very complicated. You have to really understand the securities behind them in order to understand how they really work. Besides that, you can earn money in similar fashions with real estate, currency, commodities, etc.