Investment is the process performed by an investor of purchasing a stock,
bond, certificate of deposit, commodity, real estate or another investment
vehicle with the expectation of earning a positive financial return over time.
One of the primary advantages of investment is that a prudent investor can
have their money work for them to earn more money, rather than having to earn
that extra money themselves. This gives them the benefit of enjoying a higher
standard of living for roughly the same amount of work.
Another of the main advantages of investment is that people can use well
managed investment plans as a prudent means of saving and growing money that
might be needed in the future. For example, they might set aside money they
have earned in long term investments to cover anticipated major future
expenses, such as their children’s higher educational costs or their own
funeral. Investors can also use the proceeds of their long term investments to
build a nest egg to help make their eventual retirement more comfortable.
A very important aspect of investing, which differentiates investment from
speculation or gambling, is that the investor can reasonably anticipate making
a profit on their investment due to their advance research and prudent
selection of an appropriate investment vehicle. Basically, they are not out
placing bets in the markets, but they are instead expecting a gain to result
from their research and investment activities.
Of course, having that key investor mindset certainly does not guarantee that
their investments will always appreciate in value, since they could still
lose. Nevertheless, having an investor’s mindset does help individuals to
direct their interests, and hence their capital, toward making less risky
investment choices, even if they ultimately have to accept lower returns. The
advantage of this is that they are more likely to preserve their investment
capital over the long run.