What Is Investing?

The concept of investment is actually quite simple: investing means putting your money to work for you. Basically speaking, investing is another way to think about how to make money. Growing up, most of us were taught that you can earn an income only by getting a job and working, and that's exactly what most of us do. There is nothing wrong with this way of thinking, but in order to make more money, we'd have to work more hours. However, there is a limit to the number of hours that can be worked in a day, not to mention the fact that having a great deal of money is no fun if we don't have the leisure time to enjoy it.

You can't clone yourself to increase your working time, so instead, you need to have an extension of yourself - your money - working for you. That way, while you are putting in hours for your employer, working in the garden, sleeping, reading the paper or socializing with friends, your investments can be earning you money. Quite simply, making your money work for you maximizes your earning potential whether or not you receive a raise, decide to work overtime or look for a higher-paying job.

There are many different ways you can go about making an investment. This includes putting money into a money market, stocks, bonds, mutual funds, annuities, ETF's, real estate or starting your own business. Sometimes people refer to these options as "investment vehicles," which is just another way of saying "a way to invest". Each of these vehicles has various pros and cons, depending on who you talk to, but it doesn't matter so much which method you choose for investing your money, the idea is to have your money working for you so it creates wealth. Even though this is a simple idea, it's the most important concept about investing.

What Investing Is Not:

Investing is not gambling. Gambling is putting money at risk by betting on an uncertain outcome with the hope that you might win money. Part of the confusion between investing and gambling, however, may come from the way some people use investment vehicles. For example, it could be argued that buying a stock based on a "hot tip" you heard at the water cooler is essentially the same as placing a bet at a casino.

True investing doesn't happen without some action on your part. An investor does not simply throw his or her money at any random investment; he or she performs thorough analysis and commits capital only when there is a reasonable expectation of profit. Yes, there still are risks, and there are no guarantees, but investing is more than simply hoping Lady Luck is on your side.

Why Bother Investing?

Obviously, everybody wants more money. It's pretty easy to understand that people invest because they want to increase their personal freedom, sense of security and ability to afford the things they want in life. However, investing is becoming more of a necessity. The days when everyone worked the same job for 30 years and then retired to a nice fat pension are gone. For average people, investing is not just a helpful tool, but rather the only way to afford to retire and maintain their present lifestyle.

Whether you live in the U.S., Canada, or pretty much any other country in the industrialized Western World, governments are tightening their belts. Almost without exception, the responsibility of planning for retirement is shifting away from the state and towards the individual. There is much debate about how safe our old-age pension programs will be over the next 20, 30 and 50 years. But why leave it to chance? By planning ahead you can ensure financial stability during your retirement. (For more, see Jersey Benefits Group, Inc.)

John Kaighn

Jersey Benefits Advisors

John Kaighn's Guidance Website