Do You Invest Or Are You Hoarding?

What does it mean to invest? not personally, but as a society why do we even invest?

Investing means taking money and spending it on assets that help a nation or individual companies produce more goods and services, more stuff, more food, clothing, computers to meet the needs of the current and future population.

Examples of investments include money spent on roads, bridges, factory, stores, basic research, education, power plants, and renewable resources such as timber.

Investing often has a community aspect to it in that the money or capital invested by savers is their assets, but they can be other’s liabilities. For example, when I buy a corporate bond, it is my asset, but it is debt or a liability to the company that issued the bond.

In order to pay off that debt with interest, the company must invest the bond proceeds in a project that will generate a return higher than the rate of interest paid on the debt.

The same principle applies to stocks. When a company issues stock, they sell a portion of the enterprise. The company then takes those proceeds and invests it in some project.

While they don’t have a contractual obligation to return that capital or to even to pay a dividend, they do have a fiduciary duty to act in the best interest of me or you, the shareholders.

How does investing differ from hoarding?

Hoarding means to hiding something away either for a future productive use or in the hope it will increase in value. Items hoarded for future productive uses include: food, fabric, and ammunition. Some items hoarded have little or no productive uses in that they are not employed as inputs to create goods and services that sustain life. Items in this category include gold, precious gems, and more recently the digital currency Bitcoin.

Fabric can be turned into clothes and food into human energy, but gold and precious metals can’t be turned into anything unless you count jewelry.

Items hoarded that don’t have future productive uses can only increase in value if their demand by future hoarders increases.

If I buy gold, the only way it will go up in value is that there are other hoarders willing to pay more for that gold.

Many investors are like me. We hoard!

We’re like squirrels. We hoard gold, precious gems, Bitcoin.

There’s a simple requirement for investors to be successful at hoarding non-productive assets such as gold, precious gems and Bitcoin; if by success I mean the assets increase in value over time.

That requirement is that most of the world’s capital needs to be invested in projects that can increase the world’s capacity to produce and transport life-sustaining goods and services such as food energy and shelter. Otherwise, these hoards, this gold will skyrocket in price but eventually we’ll get to the point there won’t be enough goods and service, enough food, clothing for the populace, in which case gold will fall in price, because we can’t eat gold and Bitcoin.

We need both investors and hoarders, a diversified portfolio will have both and that is what investing is. Turning money into assets that that support life (or give you income, like dividends) while also hoarding assets that increase in value in the future (growth stocks or tech companies).