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Updated 03/16/2006
Investing 101: A Tutorialfor Beginner Investors
http://www.investopedia.com/university/beginner/default.aspThanks very much for downloading the printable version of this tutorial.As always, we welcome any feedback or suggestions.http://www.investopedia.com/contact.aspx
Table of Contents
1) Investing 101: Introduction2) Investing 101: What Is Investing?3) Investing 101: The Concept Of Compounding4) Investing 101: Knowing Yourself5) Investing 101: Preparing For Contradictions6) Investing 101: Types Of Investments7) Investing 101: Portfolios And Diversification8) Investing 101: Conclusion
Have you ever wondered how the rich got their wealth and then kept it growing?Do you dream of retiring early (or of being able to retire at all)? Do you know thatyou should invest, but don't know where to start?If you answered "yes" to any of the above questions, you've come to the rightplace. In this tutorial we will cover the practice ofinvestingfrom the ground up.The world of finance can be extremely intimidating, but we firmly believe that thestock market and greater financial world won't seem so complicated once youlearn some of the lingo and major concepts.We should emphasize, however, that investing isn't a get-rich-quick scheme.Taking control of your personal finances will take work, and, yes, there will be alearning curve. But the rewards will far outweigh the required effort. Contrary topopular belief, you don't have to allow banks, bosses or investment professionalsto push your money in directions that you don't understand. After all, no one is ina better position than you are to know what is best for you and your money.Regardless of your personality type, lifestyle or interests, this tutorial will help youto understand what investing is, what it means and how time earns money
(Page 1 of 15)Copyright © 2004, Investopedia.com - All rights reserved.
Investopedia.com– the resource for investing and personal finance education.
throughcompounding. But it doesn't stop there. This tutorial will also teach youabout the building blocks of the investing world and the markets, give you someinsight into techniques and strategies and help you think about which investingstrategies suit you best. So do yourself a lifelong favor and keep reading.One last thing: remember: there are no "stupid" questions. If after reading thistutorial you still have unanswered questions, we'd love to hear from you.
What Is Investing?
What Is Investing?
The act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit 
.It's actually pretty simple: investing means putting your money to work for you.Essentially, it's a different way to think about how to make money. Growing up,most of us were taught that you can earn an income only by getting a job andworking. And that's exactly what most of us do. There's one big problem with this:if you want more money, you have to work more hours. However, there is a limitto how many hours a day we can work, not to mention the fact that having abunch of money is no fun if we don't have the leisure time to enjoy itYou can't create a duplicate of yourself to increase your working time, soinstead, you need to send an extension of yourself - your money - to work. Thatway, while you are putting in hours for your employer, or even mowing your lawn,sleeping, reading the paper or socializing with friends, you can also be earningmoney elsewhere. Quite simply, making your money work for you maximizesyour earning potential whether or not you receive a raise, decide to workovertime or look for a higher-paying job.There are many different ways you can go about making an investment. Thisincludes putting money intostocks,bonds,mutual funds, or real estate (among many other things), or starting your own business. Sometimes people refer tothese options as "investment vehicles," which is just another way of saying "away to invest." Each of these vehicles has positives and negatives, which we'lldiscuss in a later section of this tutorial. The point is that it doesn't matter whichmethod you choose for investing your money, the goal is always to put yourmoney to work so it earns you an additional profit. Even though this is a simpleidea, it's the most important concept for you to understand.
What Investing Is
 Investing is
gambling. Gambling is putting money at risk by betting on an
This tutorial can be found at:http://www.investopedia.com/university/beginner/default.asp (Page 2 of 15)Copyright © 2006, Investopedia.com - All rights reserved.
Investopedia.com– the resource for investing and personal finance education.
uncertain outcome with the hope that you might win money. Part of the confusionbetween investing and gambling, however, may come from the way some peopleuse investment vehicles. For example, it could be argued that buying a stockbased on a "hot tip" you heard at the water cooler is essentially the same asplacing a bet at a casino.True investing doesn't happen without some action on your part. A "real" investordoes not simply throw his or her money at any random investment; he or sheperforms thorough analysis and commitscapitalonly when there is a reasonableexpectation of profit. Yes, there still isrisk, and there are no guarantees, butinvesting is more than simply hoping Lady Luck is on your side.
Why Bother Investing?
 Obviously, everybody wants more money. It's pretty easy to understand thatpeople invest because they want to increase their personal freedom, sense ofsecurity and ability to afford the things they want in life.However, investing is becoming more of a necessity. The days when everyoneworked the same job for 30 years and then retired to a nice fat pension are gone.For average people, investing is not so much a helpful tool as the only way theycan retire and maintain their present lifestyle.Whether you live in the U.S., Canada, or pretty much any other country in theindustrialized Western world, governments are tightening their belts. Almostwithout exception, the responsibility of planning for retirement is shifting awayfrom the state and towards the individual. There is much debate over how safeour old-agepensionprograms will be over the next 20, 30 and 50 years. But whyleave it to chance? By planning ahead you can ensure financial stability duringyour retirementNow that you have a general idea of what investing is and why you should do it,it's time to learn about how investing lets you take advantage of one of themiracles of mathematics:compound interest.
The Concept Of Compounding
Albert Einstein calledcompound interest"the greatest mathematical discovery ofall time". We think this is true partly because, unlike the trigonometry or calculusyou studied back in high school, compounding can be applied to everyday life.The wonder of compounding (sometimes called "compound interest") transformsyour working money into a state-of-the-art, highly powerful income-generatingtool. Compounding is the process of generating earnings on an asset'sreinvested earnings. To work, it requires two things: the re-investment of
This tutorial can be found at:http://www.investopedia.com/university/beginner/default.asp (Page 3 of 15)Copyright © 2006, Investopedia.com - All rights reserved.

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