We hear it a lot, especially so these days - “investing, investing, investing”. More and more people realize now that working for the rest now your lives is not the way to go. You have to invest your money in order to have enough to retire comfortably or to achieve financial freedom. 

But, what many people don’t know is how it works. So, how does investing actually give you more money that what you put in? How does investing make you more money than your actual job? No matter what your investment is, these are the 2 main ways you’re making money:

Capital Gains / Profit:

If you buy an apple for RM1, then sell it an hour later for RM2 (because you found someone who really wants to keep the doctors away), then you’ve earn a profit of RM1. That’s it, that’s capital gains, plain and simple. As long as you’re selling someone at a higher price than you’ve sold it, you receive an increase (gain) on your initial investments (capital).

This can work for most types of investments such as commodities (gold and silver), stocks, property, and even Bitcoin! Do remember that for investments that can provide you profit through capital gains, there is an equal chance it will also turn into a loss if the value decreases with time.

Dividends / Interest:

Dividends and interest have some similarities in the sense that they both reward the investor for their money. A dividend is an amount of money given by a company from time to time to investors that buy their shares (shareholder). So, even if the stock that you buy doesn't increase in price or maybe even loses some of its value, you might still be profiting if the dividends you receive outweigh the loss in value.

Interest, on the other hand, can be given by people and institutions who borrow your money, such as banks. That's right, when you deposit your savings, you are technically "lending" your money to the bank to do other things, so the bank pays you in interest.

Although investments such as high yield savings and fixed deposits only provide you interest, while commodities only give you a chance at capital gains, an investment's profits is not restricted to only one of these two methods. The best example would be stocks, whereby it can both increase in value while paying you a steady flow of money in the process.

At the end of the day, whichever investment you choose does not really matter as long as you benefit from it. What matters is understanding how they work because arming yourself with the right knowledge might just give you an advantage over other investors.

*We are by no means certified financial planners and this article should be taken as knowledge sharing and not official financial advice. Investments have risks and you should do due diligence before investing.