Investing often involves deferring or giving up current consumption. This is done to increase wealth and build future purchasing power. For example, to buy 100 shares of a stock, a vacation might be postponed. If the investment is successful, however, the profits from it could fund future vacations or a year of a child's college education. Specific investment decisions should be based on a consideration of risk versus reward.
Some investments are riskier than others, and investors' tolerance for risk varies.
In general, greater risk to the investor should be offset by probability or potential for a greater reward or a greater return on investment. The return is simply the profit earned on the investment, including capital gains and any interest or dividend payments. Returns are typically reported in pretax dollars. This publication is a guide to investing, with an emphasis on understanding stocks, bonds, and mutual funds. The Battle Against Inflation Investments can provide a way to keep up with or stay ahead of inflation.