Investing definitely doesn’t have to be a topic to avoid at the dinner table—it shouldn’t be scary if you’re willing to teach, listen or learn. And it certainly shouldn’t be a designated job title to ‘impress’, which is what it tends to be in the egotistical society we live in. That being said, it is you, in slow motion, gambling with your hard earned money. You can deplete it entirely, but you can also double, triple or quadruple it. So for all the beginners out there who are interested in learning more about it, here’s what there is to know about investment.

First of all, what is investing? In short, it’s a way to set money aside by strategising it to work for you while you’re busy having fun doing other things, until you’re ready to use it. In other words: it’s the process of buying assets (with money that you can buy them with) that will (hopefully) increase in value. These assets will then provide returns in the form of regular income payments or capital gains. The idea is for your money to grow in numbers, over time. The reason why it’s similar, yet so different to gambling is the nature of time itself. You are effectively placing a bet on an asset you presume to be a ‘winner’, which means you are gambling with the odds, but investing is no short lived experience—and gambling tends to be just that. Keep that in mind.

There is a fine line to tread, because investing, like gambling, can be exciting. A win on the markets can get you hooked and looking for the next win. Markets move in patterns and trends. Investing comes in many different forms, and on a sharp note, I would leave a stockbroker’s job to them: this is a professional trader who buys and sells shares on behalf of clients, and to them the market patterns make sense. To many of us, they don’t.

Investments, like I said, can be seen in a larger sense as spending money, or time for that matter, to reap some reward. However, in financial terms, it’s the purchase of securities, real estate or items of value to reap income and capital gains (capital meaning financial assets).

Without mentioning the many grey areas, investing centrally works when you buy an asset at a certain price, and then sell it at a higher price. The return on your investment is a capital gain and the margin between the two prices is your profit. When your investment gains, or becomes more valuable between the time that you buy assets and sell them, it is also known as appreciation.

Investments are long term achievers, and it’s arguably safer to invest in stock and shares than it is to leave your money sitting in a bank—of course, ‘cash is king’, but like anything, it’s subject to inflation (or the decline of purchasing power). The point here is to not invest using money that you might need in the next, let’s say, five to 10 years. If you do have money in the bank, open a savings account and put any spare cash in there.

Stocks and shares are two different things, albeit their differences are blurry. Shares can be bought and owned within several kinds of financial instruments, such as mutual funds, trusts, real estate, etc. Technically, shares represent units of stock. Stocks refer to equity markets—an equity market, also known as the stock market, is where shares of companies are issued and traded, giving them access to grow their business and in turn, investors may realise their investment gains depending on the performance of the company that they’ve invested in.

Investors often use the word ‘stocks’ as synonymous with publicly traded companies. For example, if you tell your broker to buy you 100 shares of a specific public equity, you will have 100 shares of it. If you tell your broker to buy 100 stocks, you would be buying an array of different companies. Another thing to note is that when investors speak of stock, they are most likely referring to what is called ‘common stock’, which is a security that represents ownership within a corporation. So let’s say a company goes bankrupt, but you have invested in it, when the company goes into liquidation, the ‘common stockholders’ will only receive whatever assets are left after creditors, bondholders (an investor or the owner of debt securities) have been paid, which may be less that what you put in.

This is where buyers and sellers meet. Securities that are traded on the stock market, as I said earlier, can be: public stocks—these will be listed on the stock exchange—or private stocks, which will often be traded through dealers. The buying and selling of private stocks, through dealers is called an over-the-counter (OTC) market, and they are primarily used to trade the likes of bonds, currencies, derivatives, or, when companies can’t meet the requirement to be traded on the stock exchange, they are unlisted stocks (also called pink sheets).

For a company to issue stock it must begin by having an initial public offering (IPO) where an investment banking firm will help determine the type and pricing of the stock for the general public to then be able to purchase.

When it comes to the stock exchange, the largest stock (or equity) markets in the world (in no particular order) are currently the New York Stock Exchange, NASDAQ, London Stock Exchange, Euronext, Hong Kong Stock Exchange, Shanghai Stock Exchange, Shenzhen Stock Exchange, Toronto Stock Exchange, Bombay Stock Exchange, and Tokyo Stock Exchange.

An investor will bid for stocks by offering a certain price, and sellers will ask for a specific price too. When the two prices match, a sale occurs. A buyer might pay any price for the stock they want to buy, which means they are buying the stock at market value—same goes for the seller, if they sell at any price for the stock, they sell at market value.

When a publicly traded company offers stock on the market, each stock represents a piece of ownership, so if the company does well, the investor’s stock will go up in value as the company’s stock rises. The company may not do well and the stock value then falls. Activity that surrounds stock also impacts its value, such as trends for example. When there is a higher demand to invest in a certain stock, the price tends to go up, and the same happens in vice versa.

A stock exchange does not own shares, it is a market. The stocks that are traded are mostly traded through brokers, and equities, commodities or bonds among other things are what is actually being traded. There are auction exchanges, where buyers and sellers place bids and offers simultaneously. Brokers and traders will be communicating verbally on a trading floor or ‘pit’, but this system is slowly getting replaced by electronic systems.

The New York Stock Exchange (NYSE) still uses the prior, although some functions have been transferred to electronic trading platforms. ‘Designated Market Makers’ are the specialists physically present on the trading floor, each responsible for buying and selling stock in the auction. There is a NYSE Closing Auction which happens at the end of the trading day, when the price for stock is finalised for that day.

Electronic exchanges don’t require a physical location where buyers and sellers meet. Nasdaq is one of the leading electronic exchanges. Dealers carry their own inventory of stock, and they buy and sell stock on the Nasdaq as well as post their bid and asking prices. Both electronic and ‘old school’ have listing and governance requirements, and if a company listed on the stock exchange market doesn’t meet the requirements, such as falling below a minimum price, it can be delisted to an OTC market.

Market values can and do fluctuate a great deal, and are influenced by the business cycle, such as recessions and bull markets. It is a live environment, with affect.

When you start to invest, diversify your portfolio (the collection of financial investments like stocks, bonds, commodities, cash, and cash equivalents). Not putting ‘all of your eggs in one basket’ is a bumper sticker quote that just keeps on giving. This is the same for non-investors, if you have one bank, open an account with two others. By doing so, you reduce the risk of one investment, or clump of cash, hurting your overall investment or saving performance. You should also learn more about what a commodity supercycle is and how to manage the phenomenon.

When choosing a professionally managed investment fund that pools money from many investors (potentially you) to purchase securities with, choose one with a diversified portfolio in stocks. Compare the commissions that these brokers charge, read through their performance sheets, and read through what and who they invest in, with your money, to decide if first of all you agree with the company that they invest your money into, and how they themselves perform. There is a level of trust, research and projection involved from your end. It doesn’t hurt to follow the markets, don’t take day to day fluctuations on board as much as the overarching patterns that you will begin to recognise.

In the meantime, think about opening a basic, instant withdrawal, low interest savings account with your bank, and potentially another bank, because funds that are in savings accounts are federally insured. Then do your homework from there.

Many of us have experienced embarrassment, shame or even anxiety when having to talk about income, finance management and other money-related topics. As inspiring as it is to see so many subjects previously considered taboo being openly discussed online as well as in real life, unfortunately, money talk seems to have slipped through the cracks of the new generation’s unforgivable wokeness.

But what if we all started speaking honestly about our finances? What if, instead of approximately guessing each other’s incomes based on the state and location of our flats, we actually asked directly and, even better, received a straightforward answer in return? While this may sound like a recipe for disaster to some, journalist and author of Open Up: The Power of Talking About Money Alex Holder has been advocating for honest money talk for a while now.

 

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Une publication partagée par Alex Holder (@alexandreholder)

Screen Shot sat down with Holder to discuss exactly what talking openly about money could teach us, both about our finances and ourselves. As a contributor to Asto’s recent report The Cash Flow Revolution, Holder strongly believes in the message that it delivers: money is not just maths, it’s personal—emotional even—which means that understanding someone else’s approach to financial management will help you understand your own approach to it, and vice versa.

And in order for you to understand how others think about money, there needs to be an honest conversation taking place at some point. That’s exactly what Holder discovered about herself and her group of close friends, “We shared a lot. They were the ones who I went to if I wanted to discuss anything vaguely taboo—all my sex education came from my friends, they were my career coaches, etc. But with money, we all skirted around it, which made me realise how many of the conversations we were having were inauthentic because we weren’t talking about the money bit or we weren’t mentioning any figures,” she explained.

Holder mentioned the example of one time when one of her friends came to her for advice on whether she should move in with her boyfriend of 6 months to save on rent. “Of course, during that conversation you have to ask them how much they like their boyfriend but also how much money they’re going to save. Is that going to add up in the long run if you have to move out sooner? Getting those figures out meant we could actually discuss the emotional side as well as the money side.”

Once Holder started talking about money with friends, she felt a collective relief, “We were all really happy to start discussing it, because it’s such an important issue in all the areas of our lives.” Since then, she has been on a mission to tackle financial taboos and won’t stop until then.

Before defining six Money Mindsets in its report, Asto wasn’t looking for anything in particular, Holder explains, “We wanted to speak to as many small and medium business owners as possible—Asto surveyed over a thousand—and again, having conversations, asking those questions and listening carefully to the answers that were coming up led us to find patterns that certain people fell into. That’s how the different Money Mindsets were created.”

The report’s aim isn’t to slot anyone into a box, but more to help you understand how your emotions, your upbringing and socialisation as well as how well your business is doing, make you take certain decisions in a certain way at that moment in time. What makes a true difference is being aware of how you deal with problems—there’s no one way of dealing with money, and learning about how others approach those issues can lead you to fix your own. After all, we learn from others, right? Why should it be any different when it comes to money?

“There’s no normal, but there are a lot of different tools and ways to help you out, and there might be a better way for you to do it,” explained Holder. But what about once this type of open conversation has taken place—where do you go from there? Then, it’s time to act. Speaking about personal financing, Holder advises, “Look at your money: you should know exactly how much you have and how much is going out of your bank account at any time. This is even more important when it comes to business finances. Make sure your money is really transparent to you, don’t hide it behind five different passwords—you need to be looking at your bank account every single day.”

Both in personal and in business, it has become so easy for money to just leave our account. How many times have you forgotten about that extra expense at the end of the month which always takes you by surprise? I sure have. Transactions are now so effortless that being mindful of your money simply isn’t enough anymore—Holder also advises people to tune into their emotional relationship with their finances.

People are slowly realising that talking about money can be really helpful. After all, money plays a crucial role in our lives and relationships. It’s time for us to destigmatise the way we talk, think and feel about money, be that through talking with friends, partners, business owners and freelancers or by sharing our salary on Instagram like Holder did.

 

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Une publication partagée par Alex Holder (@alexandreholder)

“We all have really pocketed knowledge about money and how much people get paid. We might know about our industry and how much our parents earn but when that knowledge doesn’t stretch out to more people, it affects power dynamics and that’s how unfair pay practices can go unsolved,” shared Holder. Only transparency will help us get to a place where we all speak openly about money and where asking for money advice isn’t shameful but actually normal and helpful.

There are no stupid questions, only stupid answers, right?