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What is an investment?

What is an investment?
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What is an investment? Now that’s a question we could scratch our heads over for an eternity, but here are some thoughts in less than 700 words.

What is an investment then?

Well, for just one noun, ‘investment’ has a whole lot of different meanings. But if you’re after a pithy statement, this quote from Warren Buffett does a pretty good job: “investing is laying out money now to get more money back in the future”. And with $78.9 billion in the bank, Buffett knows all about good investments.

So, you could say that at a superficial level, investment is about getting hold of something with the aim of increasing its value. For example, buying that dilapidated house, doing it up and selling it at a profit, is an investment. As is buying a whole load of gold and stashing it in your attic for the next 40 years.

For us regular folk with nothing more than a chipped piggy bank and loose change jar, an investment could be as simple as flipping upcycled old stuff for profit.

The roots of investment

Of course, we can’t talk about investment without thinking about where the idea comes from. (In case you’re interested, the word comes from the Latin investire.)

Back in the 16th century, the word ‘invest’ meant the process of endowing someone with power or dressing them with robes or clothes of rank. Based on this, it’s easy to see how the term and its variations have come to describe the process of raising value, whether in the financial sense or in the 16th century sense of status.

A risky business

With investment comes risk – there’s no such thing as something for nothing, right? As we’ve seen so far, an investment needs some sort of outlay. In the context of gaining value, this usually means money and, to some extent, time (you need to know where to invest after all). 

For small gains – like upcycling all that old stuff – the outlay is also likely to be small. Bigger gains will need you to fork out more upfront. In other words, the bigger the risk, the bigger the potential reward.

So, if the size of what you put on the line correlates to the potential size of the return; it’s no wonder that some of the most successful investments leave us in awe at their sheer audacity.

For example, early cryptocurrency investors Tyler and Cameron Winklevoss are now sitting on 100,000 Bitcoins, which are worth about $950 million in actual money. Jackie and Mike Bezos (Jeff’s mum and dad) also hit the jackpot by investing around $250,000 in Amazon.

In both of these cases, the investment risks were huge. Had they not worked out, the Winklevoss brothers could be famous for investing in imaginary money; and the Bezos family might not be speaking.

These examples (and the way many people think about investment) have been about pursuing wealth. Although, if you want a warm and fuzzy take on it, you could say Jeff Bezos’s parents were simply investing in their son.

Consider yourself an investment

While the pursuit of wealth is good for your wallet, is it good for your soul? After all, Gordon Gekko might applaud it, but he was never going win any philanthropist of the year awards.

But can we consider the pursuit of health and happiness an investment in the true sense – seeking something for gain or raising the value of something? Unless you’re a cynic beyond help, the answer is, of course, yes.

Some would say the smart money is always on making investments in yourself first. Because ultimately, enriching your mind and your physical and mental health can only lead to greater opportunities and build resilience. All of which can set you on the path towards financial wealth. 

The moral of the story?

Regardless of whether you wait for bonds to mature, learn a new language, or take up a new skill, any investment takes time. There will also always be risks. But not making that investment and not taking that risk means you’ll never have the opportunity to achieve more than what you already have.

To paraphrase another famous phrase: live well and prosper.  

If you want to retire well, then you’ll want to take advantage of all the help you can get…

One big one? A stocks and shares ISA could help you to reduce your taxes on share and fund investments. We offer our top stocks and shares ISA picks here.

Click here to see our top stocks and shares ISAs for 2020.


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