How does this work?

Hi Emma.

This means the $5 now is no longer cash, but that you own an asset worth $5. You then earn the returns (or losses) of that asset from that point on.

If that asset is shares, it’s value will fluctuate and you can sell to redeem that money at some point in the future. But when you want that money back, you will only be able to sell at the market price.

So ideally you want to only invest money you can afford to leave there untouched.

Reason being, quality assets like diversified share portfolio or property increase in value over time, so the $5 would grow slowly over time to be worth $6, $7, etc. But the value will zig zag around rather than going straight up over time.

Hope that’s a decent explainer :)