In this post we take a look at what investing really is and how it is different from buying.
So let’s start right at the beginning…
What Is Investing?
Investing is a word that is used an awful lot.
Sometimes it is used correctly and other times it is abused.
For example, how many times have you heard a salesperson talking about “investing in a new car” or “investing in a new coat” or “investing in a new sofa?”
Good salespeople know that investing is a good thing to do whereas spending is usually a bad thing to do – relatively at least.
That’s why they abuse the investing word in order to get you to buy what they are selling.
Their sales pitch is also designed to make you feel less guilty about your purchase or maybe even provide you with a plausible reason for over-spending when you have to explain it to your partner, friends or family later – “but it’s an investment!”
Before we go any further then, it’s important to define what we mean by investing, not just to clarify things, but as you will see later, to guide us during those times when we are not quite sure what action to take at a particular moment in time.
If you are going to learn how to invest, then you will presumably want to put that knowledge to good use by becoming an investor.
Only natural isn’t it? We also don’t want to be making silly mistakes just because we don’t know what we are doing.
So here goes then…
Definition Of Investing
According to my Chambers 20th Century dictionary, the word “invest” is defined in many ways such as “to clothe”, “to settle or secure”, etc.
However, the most applicable definition it gives to describe what we are doing here is “to lay out for profit”.
Now, straight away, we can see that true investing is not the same as just buying.
Buying is about spending money (usually anyway) or “laying out” as it is described in the definition above.
Investing also involves spending money or laying out but it is about spending money on something that you can make a profit from.
In financial terms, things that have a financial value attached to them that we can generate an income or a profit from are called assets.
Of course, once you have bought an asset, you can either hold onto it to generate ongoing passive income or sell it, hopefully for a higher price than you bought it, to generate a capital gain.
The extent to which you can do either or both of these things will depend on the type of asset you have bought, of course.
How To Invest In Shares
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