What Exactly is an Investment?

Written by: David Wilkening

In the spirit of knowing what it is before you actually do it, what is investment? Sounds simple, but maybe not. Let’s take a clear and close look at it.

I’ve always thought one of the best tricks of professionals is how to get others to earn income for them. The partnership arrangements of law firms, CPA’s and others gives them relatively cheap labor from new and lower paid associates who later (sometimes, much later) become partners and share in the billings of newer (and lower paid) non-partner associates.

Lawyers (even higher paid partners) can only earn so much money by billing themselves (even if they work a lot of hours). So this is an ingenious say of adding to their income.

Some of the same principles are involved in investing. What is investment? It is the act of committing money or capital to an activity with the expectation of gaining more income or profit. Basically, it is putting your money (and getting others’) to work for you.

If you’re a professional, that’s fine. But there are many other ways to go about finding out what is an investment.

You can put the money into stocks. Mutual funds. Bonds. Real estate. Or even start your own business, all by yourself or with partners who may be “silent” or non-participating investors.

These are all “investment vehicles.”

They all have risks. And rewards, of course.
The goal is always the same, however. To make money.

Investing in modern times has changed for a lot of reasons. It’s gotten more complicated. It’s also gotten more widespread because workers no longer count on spending 30 years at a secure job where the corporation will take care of them when they retire. It’s not just a useful tool for retirement but for many, an essential way to maintain their lifestyle after retirement.

Investing is a relatively simple idea but not one that everyone always understands.
That’s why we have to explain what investing is and is not.

It is not gambling. That is risking money by betting on particular outcomes. The bettor hopes to win money. But generally the odds are inclined to be against him. But a good example of how people confuse the issue is someone who gets a “hot tip” not on a race horse but on a stock. He or she invests in it based on that “insider” advice. That’s the same as placing a bet at a horse track.

A real investor who is successful avoids such random threads of information. He or she analyzes where to “bet” or risk money.

They are betting they are right, of course. But it is a bet only because there are odds of winning or losing. Not all bets win. Nor do all investments make a profit. There are no guarantees on bets or investments. And real investors as opposed to gamblers may or may not have lady luck on their side, but that’s one consideration they don’t have to worry about.


What Exactly is an Investment?

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