Investing Basics

Investing requires saving money, investing it, and developing a diversified portfolio that is focused on the long term.

The Essentials of Investing

How to Calculate the Percentage Gain or Loss on an Investment

Frequently Asked Questions

  • What are the types of investments?

    Investments are products that are purchased with the expectation that they will produce income or profit, or both, and there are three types. Ownership investments, such as stocks or real estate, are the most volatile and profitable class. Cash equivalent investments can quickly be converted into cash. And lending investments are generally less risky.

    Learn More: Defining Three Types of Investments
  • What are the rules of investing?

    There are lots of rules, or strategies, for investing. A couple of commonly repeated rules include "never lose money" and "invest when there's blood in the streets." There's also the rule of 72, which is a formula used to estimate the number of years required to double the invested money at a given annual rate of return.

    Learn More: Rule of 72
  • How can I start investing?

    Decide on the type of investor you want to be. When opening a brokerage account, a broker will ask you about your investment goals and what level of risk you’re willing to take. Some investors want to take an active hand in managing their money’s growth, while others prefer to “set it and forget it.”

    Learn More: Where Investors Put Their Money During a Bear Market
  • What is the Buffett rule of investing?

    Warren Buffett famously once said, “The first rule of an investment is don’t lose [money]. And the second rule of an investment is don’t forget the first rule. And that’s all the rules there are.”

    Learn More: Calculate IRR Formula With Excel

Key Terms

  • Dollar Cost Averaging

    Dollar-cost averaging (DCA) is an investment strategy in which an investor divides up the total amount to be invested across periodic purchases of a target asset in an effort to reduce the impact of volatility on the overall purchase. The purchases occur regardless of the asset's price and at regular intervals.

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  • Stakeholder

    A stakeholder is a party that has an interest in a company and can either affect or be affected by the business. The primary stakeholders in a typical corporation are its investors, employees, customers, and suppliers.

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  • Effective Annual Interest Rate

    An effective annual interest rate is the real return on a savings account or any interest-paying investment when the effects of compounding over time are taken into account. It also reflects the real percentage rate owed in interest on a loan, a credit card, or any other debt.

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  • Accredited Investor

    An accredited investor is an individual or a business entity that is allowed to trade securities that may not be registered with financial authorities. They are entitled to this privileged access by satisfying at least one requirement regarding their income, net worth, asset size, governance status, or professional experience.

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  • Book Value

    Book value is equal to the cost of carrying an asset on a company's balance sheet, and firms calculate it netting the asset against its accumulated depreciation. As a result, book value can also be thought of as the net asset value (NAV) of a company, calculated as its total assets minus intangible assets (patents, goodwill) and liabilities. For the initial outlay of an investment, book value may be net or gross of expenses such as trading costs, sales taxes, service charges, and so on.

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