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Follow the Money

Investment vs. Expense:

An investment is a use of money or wealth with an expectation of income or profit. The investor expects to get his initial outlay back, with something extra, a profit. An expense is a use of money with the expectation of gaining some benefit or beneficial outcome. The wealth expended is lost, in trade for something else.

Stocks and bonds are investments, as we hope to end up with more wealth than we had to begin with. Groceries or gasoline are expenses, as they are destroyed as we use them to abate hunger or to travel. Using money for desired things is often fancifully described as an investment, but any use of money or wealth without the expectation of profit is an expense.

Test hucksters and politicians with this question: “Will I get my money back?” If the reply is a credible “Yes,” you are being sold an investment. If the reply is about gaining anything other than money, you are being sold an expense. Listen carefully, as expenses cost you, while investments pay you.