There are many ways of making money online and investing is one of them. There are different ways that you can do this but it is worth understanding each one before you go ahead and having a general understanding of investing before you do anything.
What is investing?
Many people get confused between saving and investing money and the terms are sometimes even used interchangeably. However, they are very different things and it is important to understand the main differences. A savings account is a place where you put your money and you will be paid interest on it. This means that when you want it, you can draw out all of the money that you put in plus the interest. There may be some restrictions, such as notice on withdrawals but you will get back what you put in. With an investment you use your money to buy something. This could be anything from shares in a company to a house. There is a risk that the value of the item that you have invested in will reduce and you will lose money. You could, in a few circumstances, lose more money than you invest and you need to understand what you are doing and what the risks are.
What are the risks?
The risks of investing are that the value of the item you invest in falls so that when you want to get your money back, you will get back less than you put in. This is because the values of investments go up and down. It will depend on what you choose and how the market for that item changes over the period that you have the money invested as to whether the value will go up or down. Even if it is a market you are familiar with, there is always a risk that it will go down, particularly in the short term. Often there are external influences on the value of things, things out of the control of the investor such as inflation, world recessions, changing value of currency etc.
How to Balance the Risk
Luckily there are ways that the risk can be balanced, to minimise the chances of losing money. There will still always be a risk, but it can be calculated and reduced if necessary. Some investors like taking a risk, they want to risk losing money so that they have a better chance of making a big profit on their investment. However, most investors would rather take a smaller risk and potentially make a steady amount of money. Using a fund manager to help with your investments can help to minimise the risk as they will spread the money across a number of funds so if one reduces in value the impact is not so great. Another way to reduce risk is to do lots of research and invest in something that you are confident will increase in value. Also investing over the long term will mean that the chances of small changes in value will not have such an impact as over a long term the value should still go up.