When you invest, you’re buying assets and these could be anything from stocks in Google to office buildings. The hope is that your investments will increase in value over time, so that you make a profit when you sell.
You can also take a share of any profits the thing you’re investing in makes - known as dividends when it comes to stocks. Some investment strategies focus on this aspect, aiming to generate an income by buying shares in companies that pay dividends.
Of course, the things you buy could sometimes decrease rather than increase in value. If you sell after a stock has dropped in price, you could end up with less than you put in.
To protect against this, most investors choose not to buy single stocks in just one company or asset, but instead to diversify across a wide range of assets. This helps to protect your portfolio from volatility. There are plenty of companies that will do this for you, either by actively picking a range of investments, or by mimicking one of the financial indexes, such as the FTSE 100.
While investments can be risky, especially in the short term, well diversified strategies typically outperform savings rates over the long term, helping to protect your money from inflationary rises.
"The hope is that your investments will increase in value over time, so that you make a profit when you sell."
