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.