Hopeful investors put their money into stocks, bonds and other assets in hopes that their value will increase. Making a profit on your investments is not a certainty, however; if you choose the wrong things to invest in and their value decreases, you could lose some or all of your money.
The greatest advantage of investing, and the reason that people do it, is the opportunity to realize a profit on your investment. Unlike working for a living, the size of your investment profit isn't necessarily linked to the amount of time and effort you put into it. If you select the right investments and are lucky, you can make a large amount of money in a very short time. When this happens, a high percentage of your profits are available for re-investing, because unlike a wage over time, you don't need to deduct the expenses of living.
Wise investors look at the long term and shy away from get rich quick schemes. Maintaining a diversified portfolio over a span of many years takes advantage of the general upward trend of the stock market and provides financial resources for retirement. This method is most effective when it is started early, so that investments have time to grow over the length of an entire career. When investments are finally cashed out during retirement, they can be worth many times more than the capital that was originally invested.
The greatest risk of investing activities is that the commodities in which you have invested may crash and your investment will plummet in value. These occasions are very difficult to predict because they depend as much on the fears and predictions of other investors as on any objective measure. Diversifying your portfolio over a range of assets can help to protect you from risk, but will also decrease your profit in the event that some part of your portfolio spikes in value.
When your money is invested in stocks, commodities or other non-liquid assets, it's no longer available to you for other uses. If you have enough to live on and your investments are increasing, this probably won't bother you. However, if another, better opportunity presents itself, you may be unable to take advantage of it because you can't access your money. This is why it's advisable to cover your living expenses first and only invest money that isn't necessary on a day-to-day basis. Borrowing to invest and using your home as collateral is a particularly bad idea.
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