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:

  1. Subsistence:  to feed and shelter ourselves
  2. Security:  a means to manage your future, to make the world less unpredictable
  3. Luxury:  if something is a luxury, then you’re not dependent upon it
  4. Status:  games by which people establish, hold onto, and change status
  5. 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)

  1. Subsistence: to create an income to purchase the resources needed to sustain one’s self or others
  2. Future Consumption:  to have more to consume in the future
  3. 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
  4. Obsolescence:  to prepare for change
  5. Innovation:  to anticipate change
  6. Status:  to be the person that finds “the next eBay, Google, or Facebook”
  7. Legacy:  to create wealth for future generations
  8. Power:  to control resources
  9. Luxury:  if investing is not one’s main source of income (*recently added)
  10. 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?

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