How is Money Made?
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Different investments make money in different ways. Here’s the lowdown…
#1 Interest From Lending
You lend your money to a bank, company or government and as a thank you they pay you interest. The longer they keep your money (this is called the term of the loan), the higher the interest you’ll get. Ditto if the organisation you’re lending to is considered “riskier”.
#2 Buying & Selling
You buy something and it goes up in value without you having to do anything. Cha-ching! Right? Think: property, diamonds, gold, shares of a company - you get the point. The difference between what you originally spent and the price you sell at is your profit, aka a capital gain. This is known as value investing.
#3 Company Profits
You buy a portion of a company and as they make a profit you get some of that profit too. So, say you invest into a new start-up company you’ll be rewarded down the line when they’re successful. Or, if you invest in a huge corporation, like Apple or Google, they’ll give some of their quarterly profits to their shareholders. The profit paid out to those shareholders is called dividends. This type of investment is known as dividend investing.