Industry: Investments

Using money to make money is called investing. Investment firms are in business to create wealth. To do this, they buy and sell stocks, bonds, and commodities. Stocks and bonds are also called securities.

Stocks are documents that show you own part of a business and can share in its profits and losses. When you buy a bond, you are making a loan to a government agency for a public project. You get a promise that the agency will repay your loan and pay a certain amount of interest. In this way, people use money to create incomes.

Investment firms buy and sell ownership in commodities such as lumber, grain, or livestock. They manage trust funds and foundations. Holding companies are firms that manage securities for banks, public utilities, and private investment companies.

Some firms earn money by charging fees to people who want to use their assets. For example, firms may buy or lease royalties, copyrights, and patents. Then they profit by charging a fee to users.

When investors buy shares in companies, they earn money if they happen to hold the shares while prices rise and then sell them. This is called profit-taking.

When prices fall, investors have to hold or sell. Selling at that time loses money. Holding works as long as the company recovers. Experienced investors suggest that you hold stocks through market downturns, then profit when prices rise again.

The risk is that some companies never recover. In such cases, the investors lose all or part of the original investment.

Source: Minnesota Department of Education