Although there are a variety of possible answers—e.g., “risk money to make money”— the best answer is that investing means taking money that you do not wish to spend NOW and sending it into the FUTURE so that it is available for you to spend at a later date. Investing is like stepping into a time machine so that you can meet yourself—and your money— in the future.
You could spend all of your money now but that would be foolish because there would be nothing for you and your family tomorrow. So you are faced with a decision: how much to spend today versus how much to send ahead in time for your future use.
Let’s say that you wanted to send your money across a distance—perhaps New York to Los Angeles—instead of across time. You have a variety of shipping choices:
A variety of costs and risks confront you as you make your choice. Shipping by truck may be cheap; but, it is slow. There is little risk because if there is a truck accident, chances are that your package will survive intact. At the other extreme, shipping by air is fast but expensive and, if a crash occurs, your package may be obliterated. Maybe you decide to divide your money into three packages and ship each one differently. It’s up to you.
You confront a similar set of options regarding how to send your money across time. Here are some choices:
- Bank Account (Certificate of Deposit)
Bank accounts don’t earn much money but they are relatively safe; stocks gain or lose money relatively quickly but, in the long run, they offer better return expectations. Bonds are the railroads of the financial industry—they are generally riskier than insured CDs but not as risky as stocks.
What is investment risk? What amount of risk do you need to take? In the next several posts we will talk about risk; types of risk; deciding how much risk, if any, you need to take; and, most importantly, the risk of trying to avoid risk.
This blog post is an adaptation of a similar post originally published on Mesothelioma Circle. Mesothelioma Circle is an organization focused on providing information and resources to victims of mesothelioma and their families. It is sponsored by Kazan McClain Satterley & Greenwood. Since 1974, Kazan Law firm has worked tirelessly to help the victims of asbestos exposure and mesothelioma.