How can I make money investing?

According to Investopedia, investing is

“the act of committing money or capital to an endeavor with the expectation of obtaining an additional income or profit.”

Note that it says “the expectation of additional income or profit”. It’s far from guaranteed. But just how can you make money from investing?

Getting started with investing can be overwhelming. Part of the reason, as Lanchester points out in How to Speak Money, is the huge amount of jargon involved.

When it comes to investing, there are many ways to make (and to lose!!) money, and even more words to describe them. Trading, subdividing, buying and holding, renovating and flipping, renting, reinvesting. Dividend ladders, rental income, value, capital gains, growth, negative gearing, active, positive cashflow, passive… The list goes on and on.

I have to agree with Lanchester that the reason all of these terms exist is not just because investing is complicated and needs many nuanced technical terms to describe it, but because it suits some people (read: the wealthy and the finance industry) to make finance an impenetrable field of jargon for the average person.

Jargon can be defined as:

language that is used in a particular context and may not be well understood outside that context. The context is usually a particular occupation (that is, a certain trade, profession, or academic field), but any ingroup can have jargon.”

If you’re not part of the finance “in group”, it can be daunting to get started.

But the basic principles of investing, despite all the jargon that goes along with it, are quite simple. Whether you’re talking about real estate or shares, there are two basic ways to make money: Income and growth.

Investing in property for income and growth

To look at how these work, we’ll start with real estate, since it’s probably the most familiar.

Say you buy a $200,000 apartment as an investment property.

If you can rent it out for $1,250 per month, that’s an income of $15,000 a year.

If, over say 5 years, the property goes up in value and you can sell it for $275,000, that’s a growth of $75,000 (or $15,000 a year).

Investing in shares for income and growth

The same kinds of money-making apply to stocks.

Say you buy $10,000 worth of shares.

If you receive 2 dividend payments of $250 each per year, that’s an income of $500 a year.

If, after say 2 years, the shares have gone up in value and you can sell them for $11,000, that’s a growth of $1,000 (or $250 a year).

The only two words you really need to know.

2 words you need to know when investingThat enormous list above can really all be summed up in two words: income and growth strategies.

If you trade stocks, you are looking for the price of the shares you purchased to grow before you sell them. But if you buy and hold stocks to collect the dividends, you are seeking an income from them.

If you renovate a house to flip it, you are looking to grow the sale price of the house. But if you renovate a house to rent it out, you are seeking an income from it.

Of course, with long-term strategies, you can often get a combination of the two:

Buying and holding shares, for example, can also be used to gain a capital growth. And you can collect some income along the way in the form of dividends.

Buying and holding real estate can also be used to gain a capital growth. And you can collect some income along the way in the form of rent.

In the next post, we’ll look at what each of these types of investment are good for.

Which are you most interested in? Income? Growth? Let me know why in the comments below!

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Today’s featured image is of some of the money from our travels (paid for by investing!)

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2 thoughts on “How can I make money investing?

  1. Investing. Mmmmmm. One of my FAVORITE words. Investing is Money Making Money. Saving is, well, saving money. Putting it away. Not all that great, but better than spending it.

    Investing. It’s what sets folks apart from others. Investors know that putting their money to work for them will move them forward.

    In our early years of marriage we weren’t even savers. Nope, we were spenders.

    We moved into the “Realm” of saving, but things didn’t take off for us until we became investors.

    I like collecting money (saving) but I prefer investing as it provides for growth.

    We’ve made some money with a rental property, but we’ve made a fair amount more in the market.

    At our place in life, both of us 57 and retired, we’re in the growth and income phase. We have our market investments set up to provide us monthly income, but at the same time continue to grow.

    So far, so good.

    Some great info you’re putting out. Looking forward to reading more!

    All the best from Texas!

    1. Hello there in Texas Keith!
      Thanks for your comment. That’s a fantastic definition of “investing” – money making money. I love it.
      One of the best pieces of advice I ever received was to think of your money as little workers you can send out to work for you. It’s so true. In an upcoming post, I’ll reveal exactly how this has worked out for us!
      I also like your definition of saving (collecting money) vs. investing too. (For anyone interested in this topic, there’s a great page on Keith’s blog: http://www.moneyisnottaboo.com/saving-vs-investing/)
      Have a great day!

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