I’m presently writing a book about a different way of investing or thinking about investing. I have a section on “Why We Invest”. At first I started with a specific, fairly narrow definition derived from its etymology: “contributing resources to something or someone with the expectation of benefit in the future.”
However, I remember a great talk that my friend Dougald Hine did in 2010 about the purposes of money. In brief, Dougald talked about five purposes of money:
- Subsistence: to feed and shelter ourselves
- Security: a means to manage your future, to make the world less unpredictable
- Luxury: if something is a luxury, then you’re not dependent upon it
- Status: games by which people establish, hold onto, and change status
- Accumulation: the idea that more is in and of itself better
With this in mind, I thought it would be a good idea to think deeper about why people invest. Here’s what I came up with:
Profit: to make money (to supplement income or as primary or only source of income)
- Subsistence: to create an income to purchase the resources needed to sustain one’s self or others
- Future Consumption: to have more to consume in the future
- Security: to manage an uncertain future (to compensate for decline in human capital as we age), to grow financial reserves in order to manage change or be re-invested in other ventures and projects
- Obsolescence: to prepare for change
- Innovation: to anticipate change
- Status: to be the person that finds “the next eBay, Google, or Facebook”
- Legacy: to create wealth for future generations
- Power: to control resources
- Luxury: if investing is not one’s main source of income (*recently added)
- Accumulation: simply as a way of keeping score, if you treat investing as a game
The first reason for investing makes reference to money, in which case I refer to Dougald’s list of purposes of money. Reasons #2 to #10 do not presume we only mean investing money as we could mean investing time, energy, and other resources and sources of capital.
What do you think? Any other reasons for investing? Any of these which should not be on this list?
If to think deeper, I would say one of the reasons to invest is Good Feelings when investing in ideas and people you believe in – it generates positive emotions (happiness, joy, sense of purpose) for you as an investor and for people who receive the support.
Positive emotions have a direct impact on health so by investing you not only bring some profit but also save money on medical services =)
Thanks for your comment Ekaterina.
I’m tempted to say that emotions are not the reason nor motivation for investing, but rather feedback. Feeling good or happy about something, itself is derived from something else. For example, I could feel good about investing in something that prepares for or anticipates change because it enables me to feel more secure or prepared for the future. Investing to create a legacy for my family or community might make me feel good because their future well-being is looked after. The feeling is a signal that I have a positive outcome, that numbers and data alone might not tell me.
Is there anything that we might feel good about investing in, just for the sake of feeling good and nothing else? More food for thought.
Yes, I see what you mean. I wonder what if a person wants to start playing the Money Game in a different way. When actually receiving a profit back is secondary.