To comply with changing international privacy requirements, ICI informs its visitors that we use cookies on our web site. ICI only uses cookies to allow subscribers and members to more easily use our site and to record site utilization. No personal or private information is gathered or stored. More details, including how to disable cookies, can be found on our privacy and cookie policy page. If you disable cookies, you will see this message on future visits to our site. Please click the enable button to consent to accepting cookies.
  • ICI Global
  • Independent Director's Council
Sign In  |  Forgot Password?
Advanced | Tips
  • Home
  • Policy Priorities
    • Fund Regulation
    • Retirement Security
    • Trading & Markets
    • Fund Governance
    • Taxes
    • ICI Comment Letters
  • Research & Statistics
    • Industry Research
    • Investor Research
    • Retirement Research
    • Statistics
  • Government Affairs
    • Financial Services
    • Retirement Security
    • Tax
    • Testimony
  • Industry Operations
    • Fund Accounting, Financial Reporting, and Valuation
    • Fund Distribution, Fund Clearance, and Settlement
    • Operations, Transfer Agent Servicing, and Recordkeeping
    • Portfolio Security Operations
    • Resource Centers
    • Technology, Business Continuity, and Information Security
  • News & Media
    • Media Contacts
    • News Releases
    • Blog: ICI Viewpoints
    • Speeches & Commentaries
    • Opinions & Responses
    • Videos
    • Podcasts
  • Publications & Resources
    • Resource Centers
    • Frequently Asked Questions
    • Fact Books
    • Research Publications
    • White Papers
    • Annual Reports
  • Events
    • ICI Events
    • ICI Global Events
    • IDC Events
    • Past Event Highlights
    • Sponsorship Opportunities
    • The Talent Connection
    • Event Contacts
  • About ICI
    • Mission & History
    • Board & Leadership
    • Membership
    • Annual Reports
    • ICI Education Foundation
    • The Talent Connection
    • Business Continuity
    • Careers
    • Contact Us

TOPICS

401(k)
Bond Fund
Bonds
COVID-19
Commodity Investments
Corporate Bonds
Cybersecurity
Equity Fund
Equity Investing
Europe
Events
Exchange-Traded Funds
Federal Reserve
Financial Markets
Financial Stability
Fixed Income
Fund Governance
Fund Regulation
GMM
Global
Government Affairs
ICI Global
IDC
IRA
Index Fund
Interest Rate
International
Investment Education
Investor Research
Money Market Funds
Mutual Fund
Operations and Technology
Policy Research
Proxy Voting
Retirement Policy
Retirement Research
Savings
Shareholder
Target Date Funds
Taxes
Trading
Treasury

ARCHIVE

  • 2021
    • April
    • March
    • February
    • January
  • 2020
    • December
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2019
    • December
    • November
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • February
    • January
  • 2018
    • December
    • November
    • October
    • September
    • August
    • June
    • May
    • March
    • February
    • January
  • 2017
    • December
    • November
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2016
    • December
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2015
    • December
    • November
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2014
    • December
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2013
    • December
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2012
    • December
    • November
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2011
    • December
    • November
    • October
    • September
    • August
    • July
    • June
    • May
    • April
    • March
    • February
    • January
  • 2010
    • December
    • November

Home Viewpoints

Print this page

Investing Basics: What Is Investing?

By Christina Kilroy

October 31, 2019

This month, the ICI Education Foundation celebrates 30 years of developing, delivering, and promoting investor education. As part of our yearlong celebration, we will be sharing an ICI Viewpoints post each month that explains a basic concept of investing, drawn from the ICI Education Foundation’s Investing Road Trip.

What Is Investing?

Investing has never been easier, cheaper, or more prevalent, with more than half of US households reporting that they own stock, either directly or through mutual funds or retirement savings accounts, such as a 401(k) or individual retirement account (IRA).

Reach of Stock Ownership Has Dramatically Expanded in the United States
Stock ownership, millions of US households

Note: Stock ownership includes directly held shares as well as stocks held indirectly through mutual funds, ETFs, closed-end funds, and other managed accounts; inside and outside of retirement accounts.

Source: Investment Company Institute tabulations of the Federal Reserve Board Survey of Consumer Finances

You may often hear the concepts of saving and investing used almost synonymously—“I’m saving for retirement through a mutual fund.” While investing can be a way to save for an important financial goal, they’re not the same.

It’s Different Than Plain-Vanilla Saving

Merriam-Webster defines to save as “to put aside as a store or reserve.” To invest is “to commit money in order to earn a financial return.” Investing means putting your money to work for you by buying assets that you think will increase in value over time. The money you gain from investing is called your return.

Here’s another way to think about investing. When you earn money through a job, your ability to earn income is limited by the hours that you can work. Assets that you’ve invested don’t need to sleep or eat or watch Netflix—they can work for you around the clock.

Your Money Works for You

Now imagine that you work, but you also invest some of the money that you earn—say, $100 each month. If you earn a return of 7 percent per year on your investment and reinvest your returns, your investment would grow as illustrated by the darker blue line below.

Growth of Investment with Compound Returns
$100 contribution per month with return of 7 percent per year

The gains are modest at first—for the first few years, returns add little to the total value of the investment. But as returns continue to compound over 40 years of investing, the total value of the investment reaches $240,000, and returns make up 80 percent of that.

In this example, setting money aside regularly—the saving—adds up to $48,000. But the impressive increase over time? That’s the benefit of investing.

Investing involves making informed decisions about how to make your money work for you, and how to balance the risks and rewards that come from these decisions. As you can see from the dark blue line in the graph above, the rewards can be great!

Next in this series, we’ll look at the potential downside of investing—risk—and some of the different types of risks investors face.

Other Posts in This Series

  • Investing Basics: What Is Investing?
  • Investing Basics: What Is Risk?
  • Investing Basics: Types of Investments
  • Investing Basics: Diversification
  • Investing Basics: Dollar-Cost Averaging
  • Investing Basics: The Benefits of Mutual Funds
  • Investing Basics: Tax Benefits to Encourage Saving
  • Investing Basics: 529 Savings Plans
  • Investing Basics: Compound Returns and the Power of Reinvestment

Christina Kilroy is vice president of the ICI Education Foundation.

Permalink: https://www.ici.org/viewpoints/19_view_icief1

TOPICS: 401(k)Exchange-Traded FundsIRAInvestment EducationMutual FundSavingsShareholder


top
  • About ICI
  • About IDC
  • About ICI Global
  • Privacy and Cookie Policy
  • Apply for User Account
  • Business Continuity
  • Contact ICI

Copyright © 2021 by the Investment Company Institute