Investing 101

Welcome to Investing 101. This article is designed to give a brief introduction to investing.

The two main aspects of investing are money and time. You may have a lot of both, a little of both, neither, or a mix. To be a successful investor, you don’t need to spend hours and millions of dollars; you do need education and a solid foundation.

Before we get too far in, let’s review a few disclaimers:

1. Investing involves risk. A general principle is only to invest money you can afford to lose.
2. No investment is guaranteed to have any gain or loss, despite what people may advertise.
3. Past performance will not guarantee future results.

Markets are constantly evolving, so past positive performance does not necessarily result in an upward future performance.

Let’s now discuss what investing is and what the goal of investing is. Investing is exchanging money for commodities, securities, or other assets with the goal of a return on the initial investment. So, what are some of the most popular investments? Stocks, bonds, treasury notes, gold, silver, and crypto are just a few. However, plenty of other assets can also yield positive returns: real estate, mutual funds, forex, options, etc.

You may think investing is just gambling. Can’t you lose everything? Theoretically, you could, as there is always a chance to lose investments. However, similar to life, investing is risky. You drive a car every day with the risk of a car crash, but that doesn’t deter people from moving. To put this into further context, check out the following two charts below that show why not investing is more risky than investing.

This first chart illustrates the dollar’s buying power since the start of the 20th century. The dollar has lost nearly 97% of its value since 1901; 100 dollars in 1901 would only be 3 dollars worth of goods today.

Purchasing Power of the Dollar since 1900 via Statista

The following chart shows the dollar’s purchasing power since the year 2000. The dollar has lost 45% in the last 23 years. While the amount of money in your bank account has not dropped by 45%, the purchasing power has. The problem lies in the prices of goods. If you have done any shopping, you have noticed that prices have skyrocketed over the last few years, which is the fundamental contributor to the loss of the dollar’s buying power.

Purchasing Power of the Dollar since 2000 via St. Louis FRED

So, with the doom and gloom over the buying power of money, what can we do to combat this? Investing. Check out this chart, which shows the return of the S&P500 broad market index (A stock index comprised of 500 stocks from 500 top companies) since 2000.

S&P500 Performance since 2000 via OfficialData.org

Since 2000, the S&P500 has grown ~380%, meaning if you had invested 100 dollars, you would now have approximately 480 dollars. Compare that to the 55-dollar buying power you would have if you had only held the cash in a bank account.

So, with this in mind, how can you start investing? Well, first, conduct some research. Learn more about how investing works, what is involved, and whether or not it’s right for you. You can also be on the lookout for Investing 102, which is currently in development. We plan to cover more in-depth ways to invest, who you can fund through, and how to pick quality investments.

Let’s quickly recap some of the topics covered in this article.

• You will own investments whether you choose to individually or not. Companies use 401ks, Roth IRAs, and other retirement accounts on your behalf, and nearly all have direct and indirect exposure to stocks and other investments.
• Investing ≠ Gambling. If anything, it’s more risky not to invest than it is to invest. Compare market returns over time vs inflation.
• Inflation reduces the buying power of the dollar. Investing can help slow down inflation’s effects and make you money.

This short article can only cover some things about investing or all the risks and possibilities involved. Be sure to follow us on social media sites (Instagram, Twitter/X, and Threads) to be notified when we upload Investing 102. Or you can sign up for a medium.com account and be notified by email whenever we post next!

All information in this article is for educational purposes only and is not to be considered financial advice. Do your own research and consult a financial advisor for advice.