One of my pet peeves is when people misuse words. I put a lot of effort into making my language as correct and precise as possible because I know I get distracted when I run across errors in others’ work. There’s a certain critical threshold of errors beyond which I am so irritated that I find myself unable to concentrate on or consider the central thrust of the writing (for example, blog posts written in IM speak). I don’t want to give readers of my work any excuse to dislike it beyond a real disagreement with my ideas.
But still, misuses of words are still pretty minor in the grand scheme of things. I would never dare write a blog post about how I get annoyed when people write “your” when they mean “you’re”, so what misuse of a word could possibly be prompting this blog post? It has to have greater ramifications than simply causing annoyance. And thus, it does. Misuse of the this word is partly responsible for the terrible financial situation the United States is currently in. Of course, I’m talking about the word “invest”. Follow along as I explain the power of words, and how co-opting of them can cause huge problems.
The United States is awash in bad debt. Aggregate consumer debt has grown larger than our Gross National Product. The housing bubble and economic growth of the past few years have all been predicated on an illusion of economic growth that simply wasn’t there. The personal savings rate is negative. You can only go so far with an economy that is built upon people spending money that they don’t have, and we’ve now reached that limit. All you have to do is look at the advertising right now encouraging people to borrow against their tax rebate checks to buy big screen televisions to know that there’s a problem.
And some of this can be traced back to the intentionally misleading ways in which the word “invest” is used, both by the advertising campaigns designed to make you feel better about frivolously parting with your hard-earned money and by people themselves rationalizing unnecessary purchases. But first, a definition. An investment is a purchase that can be reasonably expected to increase in value in real terms over time. For instance, the purchase of stocks, bonds, mutual funds, etc., is an investment. Even the purchase of fine wine can be an investment if you know what you’re doing (and over the past decade, the growth in value of cellars full of fine vintages has significantly outpaced the S&P 500). But keeping cash in a checking account (or burying it in coffee jars in your backyard, pretty much the equivalent) is not an investment, because its value will depreciate in real terms over time as its purchasing power is eaten away by inflation.
It’s very simple. Investment is the act of purchasing an appreciating asset. The act of purchasing a depreciating asset is, by definition, not investment. Yet so many people use the word “invest” when what they’re really describing is the purchase of a depreciating asset, for instance: “I’m going to invest in a new car” or “I’m going to invest in a new set of speakers”. People only started using this deceptive terminology because companies ran slick advertising schemes that perverted the meaning of the word. They rely on the word’s positive connotations persisting even when it’s used incongruously. It joins a long line of propagandist double-talk like “fighting for peace”, “Operation Iraqi Freedom”, and “freedom is slavery” (alas, there’s no better place for an Orwell reference).
I even heard a talking head on the local news refer to the purchase of a $5 lottery ticket as a “good investment” for the people who won the recent $270 million PowerBall jackpot. Gambling is not an investment! The expected payout of a lottery ticket is less than the cost of the ticket, so it is not an investment. Don’t confuse luck with financial prudence. For everyone who wins a PowerBall jackpot, there are millions of people whose “investment” in the lottery tickets didn’t pay off, and the total amount of money they threw away far exceeded the pay-out to the few lucky winners.
So the next time you hear someone refer to the purchase of a depreciating asset as an “investment”, please slap them with some common and fiscal sense. That poor innocent word has been perverted beyond all recognition into a synonym for “purchase” even though it absolutely does not mean the same thing. The best way out of our current financial mess is to promote real saving amongst the American populace to dig ourselves out of this debt hole. And to accomplish that, we need to wage a war of words and reclaim the true meaning of the word “invest”.