Chapter 2: Investing Basics
Understanding the fundamentals of investing is essential before using tools like the
Equities Screener or analysing company data.
This guide builds on Getting Started and introduces the core concepts every investor should know.
Progress: Chapter 2 of 16
📌 What You Will Learn
- What investing actually means
- The difference between investing, trading and speculation
- Risk vs return
- Key concepts like diversification and time horizon
- How to think like a disciplined investor
💰 What is an Investment?
An investment is the act of committing money with the expectation of generating a return over time.
Common types of investments available on Investi include:
- 📈 Equities (Shares) — ownership in a company
- 📊 Bonds — lending money to a company or government
- 📂 Funds — pooled investments managed by professionals
You can explore these directly via:
📊 Investing vs Trading vs Speculation
📈 Investing
Investing focuses on long-term value creation.
Investors analyse financials, earnings and fundamentals before making decisions.
Example:
Buying shares in a company because you believe it will grow over the next 5–10 years.
⚡ Trading
Trading focuses on short-term price movements.
Traders often use charts and technical indicators.
Learn more in:
Charts & Technical Analysis
🎲 Speculation
Speculation involves making decisions based on uncertain or incomplete information, often with high risk.
Example:
Buying a stock purely because of hype or rumours.
💡 Most successful investors avoid speculation and focus on research-driven decisions.
⚖️ Risk vs Return
All investments involve a trade-off between risk and return.
- Higher potential returns usually come with higher risk
- Lower risk investments typically offer lower returns
Examples:
- Bonds → generally lower risk, stable income
- Equities → higher risk, higher growth potential
Compare both using:
📆 Time Horizon
Your time horizon is how long you plan to hold an investment.
- Short-term: days to months
- Medium-term: 1–3 years
- Long-term: 5+ years
Longer time horizons allow you to:
- Ride out market volatility
- Benefit from compounding returns
🔄 Diversification
Diversification means spreading your investments across different assets to reduce risk.
Instead of investing in one company, you can:
- Own multiple equities
- Combine equities and bonds
- Include funds
Explore options:
📉 Volatility
Volatility refers to how much prices move over time.
- High volatility = large price swings
- Low volatility = more stable prices
You can observe this visually using:
Advanced Charts
💡 Compounding
Compounding is the process where your returns generate additional returns over time.
Example:
- You invest €1,000
- Earn 5% annually
- Next year, you earn 5% on €1,050
Over long periods, compounding can significantly increase wealth.
📊 Income vs Growth
Investments can generate returns in two main ways:
- Income — dividends or bond interest
- Growth — increase in price over time
Example:
- Dividend-paying stocks → income
- Growth companies → capital appreciation
See:
Profit & Loss Guide for how companies generate profits.
⚠️ Common Beginner Mistakes
- Chasing hype instead of doing research
- Ignoring financial statements
- Overtrading
- Not diversifying
- Focusing only on price, not value
Learn how to properly analyse companies:
Company Page Guide
🔗 Related Guides
⬅️ Previous:
1. Getting Started
➡️ Next:
3. Understanding the Home Page