My last post was about trying to generate a conversation about what it means to invest, and we picked up on a common definition. However, there doesn’t seem to be one.
Most people that I talk to speak of investing as it relates to their retirement. Either what they put in their 401k, a brokerage account or an IRA. And it is this idea that investing is for retirement that often may cloud the issue of how, when and what to invest in. Of course, we all know people will invest for college savings, and maybe a few other things. But for the most part we are talking about retirement.
At the heart of the investing debate is the risk/reward (return) and how passive management is better than active management and vice versa. A lot depends on what you are investing for. Because no matter what most studies show, investing in your particular case is an individual act. Too often we are told what is best for us, and we assume that what someone else says makes sense.
But none of this addresses what, in fact, the common held definition of investing is. We can speculate, and make up our own, but we really don’t know. The SEC doesn’t even have a definition for it. So, one thing we may agree on is that investing has a fluid definition. But rather than blanketing the word “invest” with one definition. Let’s break out what we are really trying to do.
1) Investing to make money
2) Investing for retirement
3) Investing for short term goals (car, boat, house)
4) Investing to buy a business
Ok, I guess the list could go on. But let’s start with these four. Send me what you would invest for and I’ll write about it.