There is a misconception of what investing is. The typical impression is that it has to do with the stock market or real estate, however investing money is much simpler than that. The above conception keeps many people out of investing because it sounds too hard and complicated. Also, most beginning investors have small seed capital, with broker commissions and such it seems a real barrier to invest in these traditional investment mediums.
The essence of a true investment lies in the return. When ever you spend a block of money, large or small, that is designed and does give you a return, you can say it was an investment. The main thing to remember about investment is that risk is the main name of the game.
Any investment will have a measure of risk and most investors use the simple bank deposit as a bench mark for risk and reward. A bank is guaranteed by the government, so the risk is unusually low for an investment. But also, so is the return or the interest rate a bank will pay you for depositing your money.
Nevertheless, this investment is the golden mean and is used to compare other investments with. The two things you compare is risk and reward. The higher the risk, the higher the expected reward, but not always.
An investment can be as simple as spotting an opportunity in the classifieds. Imagine you noticed the neighbor down the road is selling a mountain bike. It is in great condition and the price is way too low for what your estimation of the bike should be worth. You pay them the asked for $70 and you re advertise the same bike after giving it a thorough clean and detail, for $150 Someone in the next block answers your ad and negotiates with you and buys the bike for $120
What has happened here? Something quite incredible. You invested $70 but you got back your $70 and you got another $50 for your troubles. That is a 70% increase! The bank would have paid you 7% on that $70 after an entire year has passed. You completed this investment in under a week. This can be considered a very successful investment. Heres why.
Before you bought the bicycle, you considered it from a very prudent perspective. You spent several hours looking at bikes and familiarizing yourself with the current micro climate of bikes in your area. You ascertained, it was worth at least $140 but you also expected it to sell quite quickly at a little lower price. The risk question you asked yourself, is will this bike sell, if the worst thing happened and absolutely nobody was interested and I had to price the bike $70 Would I get my money back? If the answer to that question is in the affirmative, then you have a good low risk, high return investment. Your next step would be to compound that $120 into another 50% to 70% return.