Consumption vs. Investing

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When you own or earn some money, there are many possibilities on how to spend it. You can spend it on travelling, on food, concerts, cars, a new cell phone, etc. and enjoy immediate pleasure. Or you can choose to put (some of it) aside, put your money at work for you and eventually make profit out of it, allowing you to spend more at a later stage. The first category of expenditure is called consumption, the second is called investing.

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Investing basically means that you are putting a part of your wealth, in most cases in the form of money, at work with the purpose of making more wealth out of it, instead of consuming it and enjoying immediate pleasure. This wealth building is based on some principles that have been exploited for centuries, if not millennia. Weighing out risk against potential returns is an immediate consequence of our human nature and even has been rooted within most large religions.

 

There are many ways and tools to invest, and every medium supports specific preferences of different types of investors. Nonetheless, most investment assets are driven by the same basic principles.