What Is Investing? - Saving vs Investing

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Let's talk for a moment about what investing is. We've been on this trajectory with a series on savings and building up this emergency and opportunity fund, so that you have liquid capital that's safe, liquid and growing, so that you can use it, not only for an emergency should that arise in your life, but also for an opportunity, or to invest in something that's going to produce a return for you.

So as we've contrasted saving and investing, we want to dig into what is, in fact, investing. Well, the first thing that I want to share with you is a definition, and broadly, investing is devoting, using or giving of time, talent, emotional energy or money for a purpose or to achieve something.

So we all have different ways of investing. We invest our time into things that are important to us. We invest in relationships, we invest in our health. But all of our investing, financial and otherwise, is for the purpose of achieving something. We hope to turn something small or a seed, into something larger.

Financially this can look several different ways. Two of the main objectives for investing are one, to create cash flow or income, the other would be to create growth or appreciation.

Now depending on what your objective is, you will have different types of investments that will fit that objective and purpose.

So cash flow would look like this, that might be a cash flowing real estate property, or it might be a cash flowing business. Somehow you have income coming into your personal economy, as a result of this investment.

Appreciation might be something like you are buying precious metals, with the hope that they will appreciate or grow in value. The same thing of buying a property that you're not necessarily looking to cash flow from, but you are looking for that to have an increase in value, at which point you might sell in the future, and reap the reward of that increase in value. Bitcoin might be something else. Maybe you're looking at that saying I think that this is going to go up in value, and I'm hoping for appreciation.

Now when we look at the three distinguishers safety, liquidity and growth, those are three attributes that we can kind of wrap around any financial product to measure them. How well do they meet these objectives?

When you cross that threshold from saving into investing, you have a different objective. On the savings side, we want money that's safe and liquid, and we hope it grows but that's not the primary purpose.

When we're on the investing side, however, the objective changes. We are no longer looking for that money to always be liquid for us. It's not as important that it's safe, it's most important that it's growing.

So it's defining for yourself what specific objectives am I accomplishing?

Now cash flow and accumulation have two different goals. If you're looking for cash flow, that is something that's going to generate income in your life today.

Appreciation is something that's going to improve your net worth, and maybe you'll want to turn that into cash flow somehow in the future so that you have money to live on.