When silver started to rapidly increase in value at the beginning of 2026, did you resist the fear of missing out?
Did you model a range of potential outcomes to determine where the price might be by the end of March? With a Monte Carlo simulation, perhaps?
Investing is a daunting subject.
But the overlap with statistics, psychology, economics, and various other subjects gives it interdisciplinary potential.
A quick disclaimer: This is not a guide to picking stocks, asset allocation, maximising returns or advice about what anybody should do with their money. It is an attempt to understand investing and to later see how it can be applied elsewhere.
- What is investing?
- Why Invest?
- Risk and Risk Management
- How does investing compare to saving?
- How does investing compare to gambling?
What is investing?
In the simplest of terms, investment is spending money today in order to have more tomorrow.
But just because you make an investment, it doesn’t mean you’ll get a return. There is the risk of being worse off than when you began.
Why Invest?
The sole objective of investing is to increase wealth over time, and better yet if you don’t have to increase your workload to accomplish it.
The exact purpose will vary between individuals, for example saving for retirement, supplementing an existing income, funding education or to make a larger purchase.
If it’s something you are considering, there are some key elements that are worth understanding or digging into deeper.
Capital
Capital is a broad term that refers to the financial resources that you have available to use to generate more wealth, which include existing funds or assets that you currently own.
Asset Classes & Diversification
When planning to invest there are a variety of assets to choose from, such as bonds, ETFs, stocks and mutual funds.
Diversification is the act of dividing your investment into multiple assets across those classes or within different options available in one of them.
The goal is to spread your investment so that should one asset suffer losses, they might be recovered elsewhere, however diversification for diversification’s sake isn’t a guaranteed form of risk management.
Your personal choice of asset allocation can be determined by numerous factors including, but not limited to, your tolerance to risk, financial objectives and even your age.
Compound Interest & Dividends
When you invest your money, in certain assets you can receive some kind of return, which will typically be in the form of interest or dividends.
The former refers to a percentage return on your investment increasing its value, which compounds, meaning that the interest you earn in your first year will begin to earn interest in the second year.
The latter however, is a single payout mostly based on the performance of the asset.
Inflation and Purchasing Power
When you go to the supermarket for some milk, you might notice that last week it cost €1.08, yet this week it costs €1.12. While that €2 coin you use to purchase it is still worth €2.
Inflation refers to this gradual increase in goods and services. The result is a reduction in purchasing power, where a unit of currency in relation to the goods or services available is less valuable.
Ideally you want any investment you make to grow at a rate greater than that of inflation to improve your purchasing power.
Time Horizon
The time horizon, sometimes referred to as investment horizon or planning horizon, is a reference to the amount of time you plan to invest for.
Risk and Risk Management
Investment is a risk. Although in the long term value typically increases, crashes happen, companies go bust and countries go to war.
Just because they don’t happen every day, they still have a large impact, which can result in some serious losses.
Investors and brokers often adopt a risk management strategy in an attempt to mitigate the impact of risks on any scale, though their effectiveness might be questionable.
How does investing compare to saving?
Saving is the act of preserving capital, rather than exposing it to risk in the pursuit of growth, with stability being the priority.
However, safety is relative. If the rate of inflation exceeds the amount of interest earned from a savings account, your capital is losing purchasing power.
How does investing compare to gambling?
Gambling is typically a zero- or negative-sum game, where one person’s gain comes at the expense of another.
Investing, on the other hand, is generally linked to productive activity. Companies create goods, governments build infrastructure and economies expand.
As a result it can be positive-sum, where value is created rather than redistributed. And even if you make a loss on paper one year, you can still receive returns in the form of dividends or interest.
In gambling, the odds are stacked against you and a loss is simply a loss with no interest or dividend to mitigate the cost.