Investment

Today you can eat the apple in your hand right away, or you can plant its seeds in the soil and patiently wait to one day own a vast apple orchard. This is exactly what investment is: the process of using our current resources—usually money or time—to generate greater returns in the future. It is not only the wealthy who can invest; even children with small savings in their piggy banks can invest for their future dreams.

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Investing helps us build a safety net against future uncertainties. For example, taking steps today to obtain a good education later or to start the business of your dreams are both forms of investment. This process protects our money from losing value due to factors such as inflation and helps us become more economically resilient.

In the world of investment, there are many options we call “instruments.” These are like different vehicles that take us toward our goals:

• Stocks: Owning a small share of a company.
• Gold and Foreign Currency: Traditional choices used to protect against economic fluctuations.
• Investment Funds: The pooling of many people’s money to be managed by professionals. This allows us to become partial owners of investment instruments that would otherwise be too expensive for us to access individually.

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Exactly 2,700 years ago, when the Lydians invented money, the foundations of investment as we know it today began to take shape. People first engaged in barter, then started saving money, and eventually used it to build large ships and factories. The establishment of the first stock exchanges revolutionized the world by enabling people to invest in businesses run by others they had never met.

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When investing, there is no guarantee of profit; sometimes the value of the instruments we invest in can decline. This is called risk. To reduce risk, you must not put all your eggs in one basket. That is, by spreading our money across different instruments (diversifying), we protect ourselves.

Economic experts use different terms for some things the public calls “investment.” For example, buying gold and storing it at home is not truly an “investment,” but a savings. A true investment means building a factory or dam that increases production capacity. However, one of the most valuable forms of investment is spending on your own education; economists call this “human capital investment.”