Investments usually involve investing your money in a venture where the basic idea is to increase the value. The money you invested increases in value in one way or another and you can then get back more money than the ones you put in from the beginning. But an investment usually involves a certain degree of uncertainty. It is a risk you take in exchange for the chance to make a profit.
In principle, all investments carry the risk that things will not go as well as you would like and that the value of the investment will decrease rather than increase. It may be a slight decrease or so bad that you lose all your invested money. If you trade in shares you know that they can go both up and down and there is no guarantee that you will make a profit.
Most people who invest money know that this risk exists
They weigh the risk of losing money against the potential profit that can be made and when the chances of winning are big enough, or when the opportunities to make a big profit are attractive enough, they invest. Hopefully, the effort is well considered and well thought out.
Some investments have a higher risk, such as trading in currencies or shares with very short-term goals. To some extent, you might even like it by investing money in a casino. In other cases, it is more secure investments such as safe funds and interest-bearing securities.
The golden rule for wise and safe investment
There is a golden rule when investing that you should follow and that is that you should never invest money that you cannot afford to lose. The point is quite simple. Since there is always a certain risk of losing your money when investing, in whole or in part, you should only invest money that you do not need to manage your everyday finances.
While it may not be likely that you will lose all your invested money, you should have the attitude that this money should be recoverable in the worst case. If you use money that you really need – for example, investing / investing money that will go towards paying bills or upcoming taxes, etc. – it can go bad if you should go back.
Normally, if you own shares, for example, the stock market can go down and you lose some value, but rarely all money goes away completely. However, it can happen, depending on what you invest in. But even if you do not lose all your money, you may lose more than you can afford if you invest money that is earmarked for something important.
A concrete example
An example might be that you sell a fund at the beginning of the year and then get the whole value in hand. However, part of the profit (30 per cent applies to capital income) is tax and must be paid to the Swedish Tax Agency. You can do this if you want to wait to do it because it will take a while before they even notice that they have some money.
Investing the money that the Tax Agency will have from you in tax in a year or so can be very risky. Sure, it might be tempting to squeeze out a few extra thousand dollars from that money, but think about losing money instead. Then you would suddenly stand there with a tax debt and not have enough money to pay the whole. This money must instead come from somewhere else, for example from your regular bank account.
Money that you, for example, intend to use for bills or food may have to be used to pay off the tax debt, just because you invested that money in an unnecessarily risky way. Sure, you may have good margins and other saved money that make it less risky, but not everyone has the same buffer.
Use money that is not needed for the everyday economy
To simplify, it is best to use money that you have over after you have paid all bills, debts and other things. In many cases, some of this money is earmarked for savings and money you deposit into your savings account can be advantageously invested.
Sometimes you may want to keep the money in the savings account instead of buying funds and shares for them and it is of course worth considering. The savings account is a safe savings form, but it rarely has as good a return as a slightly riskier alternative.
Money that should not go towards bills, food and other expenses a regular month can be spent as little as you want. Investing them in, for example, mutual funds is a good way to set up long-term savings and get a reasonable return. However, it is not a requirement that you save all money or “play it safe” with them.
You can bet on high-risk stocks, currency or commodity speculation or other forms of bets that you know you can afford to spend and lose. You can even choose to play at the casino or bingo if you wish. There are online casinos such as http://se.bingo.com where you can run different bingo games and bet your money or if you want to play roulette or participate in competitions.
This too is a way of risking your money where you have a chance to make profits. Just as with other alternatives with high risk and the possibility of high profits, it is of course a chance and therefore extra important to use money that you know you can save.
No matter what the money is used for, you should make sure not to risk your finances by spending or investing the money needed to keep your personal finances rolling. In fact, this applies not only to investments, but also to other things, for example if you want to buy something bigger and more expensive, such as a new TV. Or at Christmas when you are going to buy Christmas presents, Christmas food, Christmas tree and all that. If you spend too much you will end up in a difficult seat enough time.