What is Investing?
Investing is the practice of putting unused resources to work in a way that the size of the resource will be increased, either immediately or in the future. Investing is often used in addition to saving by prudent personal finance managers in order to build a bigger retirement income or to more effectively use monies set aside for savings.
You can be investing in real estate, or investing in a business, you may be investing in stocks or bonds, or gold but one rarely hears of someone investing in commodities or foreign exchange currencies. So, it would seem there is a mental distinction being made between resources being placed into something fairly certain to reap rewards and placing resources into something more speculative. For example, when was the last time you heard of someone investing in the slot machines or in the lottery or in pari-mutuel betting.
If the above definition is altered then to read “Investing is the practice of putting unused resources to work in such a way that there is substantial likelihood that the size of the resource will be increased either immediately or in the future” it may be more descriptive.
Often, especially when investing in stocks, there are two ways in which the size of the investment can be increased. First, the stocks purchased can earn dividends, earnings amounts announced by the corporation based on the quarterly earnings divided by the number of shares outstanding. Second, the stocks themselves may go up or down in price. Presumably one would not want to sell the stocks when the price had dropped, only when the stock price had gone up significantly so that there would be a sizable profit. There is the risk that the stock prices will go down, but that is the reason for doing your due diligence before purchasing the stock.
Investing in real estate is another method to increase the amount of your investment. Again, there are two possible ways to increase your real estate investment. You can use the investment monies to purchase real property and then rent or lease the property to renters and gain the monthly income back on your amount. Over some period of time if the house remained rentable, you would theoretically earn the entire amount of the purchase price of the house. In addition, you could presumably sell the house for more than the purchase price in order to gain additional investment funds. Real estate investing is one of the most stable and risk free methods of investing.
by Nathan.Smarty 19 years ago