Understanding the Concept of Investing

What Is Investing?
Generally speaking, every activity that is done today but which yields profit at a later date can be described as an investment. Investment involves postponing your consumption today in order to put your savings to work. Investment can also be described as the bridge between having savings or surplus cash and reaping returns from that surplus cash. In other words, investing has the potential to move the savings or surplus funds of one person or entity to another who needs or requires those funds. http://www.amazon.co.uk/gp/product/B00XAMY1O6?

Investing is the act of committing money or capital to an endeavour with the expectation of obtaining an additional income or profit.

It is actually pretty simple: investing means putting your money to work for you. Essentially, it is a different 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 is exactly what most of us do. There is one big problem with that assumption which is that if you want more money, you have to work more hours and most probably work harder too. However, there is a limit to how many hours a day we can work, not to mention the fact that having a bunch of money is no fun if we don't have the leisure time to enjoy it.

You cannot create a duplicate of yourself to increase your working time; so instead, you need to send an extension of yourself which is your money to work for you. That way, while you are putting in hours for your employer, or even mowing your lawn, sleeping, reading the paper or socializing with friends, you can also be earning money elsewhere at the same time. 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 stocks, bonds, mutual funds, or real estate among many other things, 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 advantages and disadvantages, which we will discuss in a later chapter of this book. The point is that it doesn't matter which method you choose for investing your money, the goal is always to put your money to work so it earns you an additional profit. Even though this is a simple idea, it is the most important concept for you to understand.

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 your office is essentially the same as placing a bet at a casino.

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