Money in a savings account is safe, but it grows slowly. Investing can grow money faster, but it can also lose value. This guide explains stocks, bonds, funds, risk and return in plain words.
This article is the reading companion to the free Mondosol lesson Money Matters: Investing Basics, part of the Money course. Read it, watch the videos, or press play and listen first, then practise in the lesson.
Free: create your free Mondosol account to practise this lesson and track your progress.
In this article
What investing means
To invest is to put money into something hoping it will grow in value over time. Saving keeps your money safe for later. Investing accepts some risk, because the value can go up and down, in return for the chance of a higher return.
| Saving | Investing | |
|---|---|---|
| Goal | Keep money safe and available | Grow money over a long time |
| Risk | Low | Higher: you can lose money |
| Good for | Emergency fund, short-term goals | Long-term goals, many years away |
The key words
| Word | What it means |
|---|---|
| Stock | A tiny piece of ownership in a company that you can buy or sell. |
| Dividend | A share of a company’s profits paid to people who own its stock. |
| Bond | A loan you give to a government or company that pays you back with interest. |
| Interest | Extra money paid to you for lending your money, or charged when you borrow. |
| Portfolio | The collection of all the investments a person owns. |
| Return | The profit or loss you make from an investment. |
Stocks, bonds and funds
A stock makes you a part-owner of a company. If the company does well, the stock can rise and may pay a dividend. If it does badly, the stock can fall.
A bond is a loan. You lend money and the borrower promises to pay interest and give the money back on a set date. Bonds are often less up-and-down than stocks, but they are not risk-free.
A fund collects money from many people and buys many stocks or bonds at once. This spreads the risk, so one bad company hurts less. Funds have costs, so always read the fees.
Risk, return and time
Higher possible return usually comes with higher risk. Two ideas help beginners think clearly:
- Diversify. Do not put all your money in one company. A portfolio with many different investments spreads the risk.
- Think long term. Prices move up and down. Money you need soon should not be in investments that can fall.
Read more in our guide to risk and reward, and see how money can grow in compound interest explained.
A simple example (invented)
Invented numbers, only to show the idea. Two people each have 10,000 kr. Anna keeps all of it in one stock. Ben puts it in a fund with many companies.
| Anna (one stock) | Ben (a fund with many companies) | |
|---|---|---|
| If one company has a bad year | Her whole investment is hit | Only a small part is hit |
| Costs | Trading fees may apply | The fund charges a yearly fee |
| Main risk | Everything depends on one company | Whole markets can still fall |
Neither choice is “safe”. The example only shows why spreading risk matters.
Before you invest
- Build an emergency fund first, so you do not have to sell in a hurry.
- Only invest money you will not need for several years.
- Check the fees, and be careful with promises of fast, guaranteed profits. Those are a warning sign of a scam.
- Check the rules in your country. In Norway, see Skatteetaten for how gains and dividends are taxed.
Watch: investing basics
Two videos show how stocks, bonds and the stock market work. They are explanations, not advice.
Video: “The Basics of Investing (Stocks, Bonds, Mutual Funds, and Types of Interest)” by Professor Dave Explains, on YouTube.
Video: “How does the stock market work? – Oliver Elfenbaum” by TED-Ed, on YouTube.
Take it further
Reading is a good start. These options help you go from knowing to doing.
All courses, live coaching sessions and members-only events, with a 30-day money-back guarantee. See the plans
A live session on Google Meet to turn this topic into your own plan. Book a session
Frequently asked questions
What is the difference between saving and investing?
Saving keeps money safe and easy to reach. Investing accepts some risk for the chance of more growth over a long time.
Can I lose money by investing?
Yes. Investments can go down in value, and you can get back less than you put in.
What is a dividend?
A dividend is a share of a company’s profits paid to its owners. Not every company pays one.
What is diversification?
It means spreading your money across many investments, so one bad result does not hurt your whole portfolio.
How much do I need to start?
It depends on the product and its fees. Start by learning the basics and checking costs, and invest only money you can leave alone for years.
Curious how a real investing app works?
Read our independent eToro review: what you can trade, what it costs and the risks to know first. It is a look at one platform, not a recommendation to invest.
Affiliate disclosure: the review page contains affiliate links, so Mondosol may earn a commission if you sign up through them, at no extra cost to you. Investing involves risk and you can lose some or all of your money. Educational, not financial advice.
Keep learning
- Course: Money
- Lesson (practise it): Money Matters: Investing Basics
- Read next: Compound Interest Explained and Risk and Reward
- Related: How to Start an Emergency Fund in 30 Days
Educational, not financial advice. Investing involves risk and you can lose money. The example numbers are invented, and this post links to our eToro review page, which contains affiliate links (see the disclosure above). Mondosol is not a licensed financial adviser.
Ready to practise?
Create your free account and try the Money Matters lessons.
Create your free Mondosol account
