“If you do not find a way to make money while you sleep, you will work until you die.” – Warren Buffett.
Investing is the centrality of personal finance. An individual can take charge of their personal finance by earning and saving as much as they can, but if they do not invest, the return on their efforts will still be abysmally poor.
Investing ensures that your earnings and savings are optimally allocated to ventures that can pay off reasonable returns. On those returns, you can plan your retirement and never have to work again in your later years.
Those ventures can be a business, physical assets such as real estate, and tradable financial instruments including stocks, bonds, certificates of deposit (CDs), commodities, exchange-traded funds (ETFs), mutual funds, precious metals, and even cryptocurrencies. When you invest, you expect an income or a profit.
Understand Investing
Investing is allocating resources to an asset or different types of assets for a return. The return can be a steady income (e.g. dividend) or appreciation of the price for which the asset was bought (e.g. capital gain).
Investing requires balancing risk with return. As a rule of thumb, low-risk assets tend to generate low returns while high-risk ones tend to generate high returns. As a potential investor, you are expected to put that in mind when choosing the assets you want to invest in. On the low end of the risk-return spectrum are certificates of deposit (CDs) and bonds while on the high end are stocks, commodities, and cryptocurrencies.