Monday, November 10, 2008

Do you know what investing means?

Most people want to grow their wealth. Many believe investing is a good way to do so, and they're right.

The problem is many people don't understand what investing is. I came to that unscientific conclusion after a conversation this weekend with a Money Corner reader who had questions about everything from insurance to credit cards. Her most telling questions, though, were about investing: how to get started and isn't that really risky anyway?

The second question illustrates how a large number of people think about one of the most basic ways to put their money to work for them. Most young people who talk to me me about investing do so in terms that show they view the capital markets more like casinos than places where careful thought goes into making long-term decisions that mitigate risk. Many have actually said to me that they don't see a difference between playing the lottery and contributing to their 401(k)s or buying shares of companies they regularly patronize.

That's a scary and dangerous line of thinking, since in effect it helps keep people on the sidelines and in the case of most young people, that happens at a critical time because their youth puts long-term investing principles like compound interest and dividend reinvestment in their favor.

So I'm curious. If you were given a test with one question on it: "What's your definition of investing?", how would you answer it?

After I get a few answers from readers, I'll post my own personal definition.

5 comments:

Product Junkie Diva said...

A test bright and early Monday morning, you know that isn't right Keith.
Ok to me investing means that I take money that I have either in savings or money from my check and I put it in either a business or stocks or some (trying not to use the word investment) venture that will help me to ear more money over time. I guess that's it in a nutshell...so did I pass????

PJD

Butterrfly said...

Hmm... my daddy always says, "its not how much you earn but how much you save (invest) that matters". Beyond the obvious long and short terms rewards of investing I think that investing really is sort of symbolic in a sense... symbolic of personal discipline and sacrifice.

TSM (The Style Maverick) said...

What I've always understood investing to be is almost two- maybe even three-fold. Investing to me is not only placing your hard earned dollars (whether it's money you've already saved or a portion of your regular income) into lucrative businesses, stocks and bonds, but also knowing when and where to move that money. That's the part that always confused me though because if you aren't familiar with how to do it in the first place, it's going to be difficult to wrap your head around the strategy of it all. The last part about investing that I was recently told deals with effectively using your income in order to be able to stretch it and essentially do more with less. Saving is the first hurdle, I guess developing proper methods of investing would be the next. Right?

Velvet Jones said...

Investing is one step above blackjack on the ladder of legal gambling.

I kid...kinda.

To me, investing is taking my money to buy shares in a company or fund, with the idea that over time, the value of these shares will increase moreso than if I had put the money under a mattress or in a savings account. With increased earning potential, there is increased risk in that the shares could also lose value, hence why you diversify your portfolio (your collection of various investments like stocks, bonds, real estate, savings accounts, etc.) to mitigate as much risk as possible.

Mary said...

I bumped into a friend who told me, "Look at the market, investing in a 401k is a waste." And in the same breath admitted he bought $600.00 in bottle service over the weekend.

Spending $600 on something where you are certain to get 0 ROI is ok, but investing in your financial future where there is some change of return is a waste?? BOGGLE!!