5 Facts Everyone Should Know About Investing

Here are five facts everyone should know about investing:

1. The stock market is simply a platform for companies to raise money – it is not something arcane or difficult to comprehend. Just think of it as a method for companies who want to raise funds for expansion to sell a part of themselves. Investors who believe that they can participate in the company’s growth then fund the company by exchanging their money for part-ownership in it. The stock exchange also serves as a platform which matches buyers and sellers, allowing them to transact.

2. Investing helps you to grow your money and achieve your long-term financial goals. Saving money alone, though helpful, will not help you to grow your money. Investing offers the best way for the average person to grow their money over the long-term and to prevent their savings from being eaten away by inflation.

3. The stock market is a place where money flows from the impatient to the patient. Many people think of the stock market as a place where traders frantically place buy and sell order while looking intently at price charts and trend lines. But such frenetic activity usually results in high transaction costs, and trying to predict short-term random price movements is a futile activity. Patient investors reap the rewards of long-term steady growth in the companies they purchase, and they purchase these shares from the hordes of impatient traders who are seeking to unload their shares for a miniscule profit.

4. Investing is not only about returns, it is also very much about risks. Many people think of investing only in terms of the potential rewards, but fail to adequately consider the risks that are involved in attaining those rewards. This is why a margin of safety is so important – it is to ensure that risks are mitigated when investing, and one can then enjoy decent returns once they account for these risks.

5. Investing does not need to be difficult, but you do need to put in the required effort and work in order to ensure you achieve a decent return. Warren Buffett once remarked that “Investing is simple, but not easy”. What he meant was that the concept of investing is simple to understand, but the actual effort involved in investing made it “not easy” for many people. However, if one has a basic level of understanding about how investing works, and can take time to read up more, it should not be too daunting a task.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice.