What is an Investment? Investments come in different shapes

"Investment'* is a word often used merely as an excuse to justify buying something that the buyer cannot afford. Some­times it is hard to draw the line; but to play safe, let's not call a purchase an investment unless we expect it to result in a measurable financial benefit, either to reduce living expenses or to increase income, or to cause capital to grow in market value.

Driving a fast, showy new automobile is, for some people, the main reason for living. But no matter how marvelous the car, it hardly figures as an investment, largely because the resale value depreciates so fast and so far.

Fixed Price, Fixed Return Investments

The most common form of genuine investing is a loan, or something similar. Suppose a man borrows $100 from a friend, with a verbal or written promise to pay back $101 next month. Provided the friend takes the promise seriously, he is an investor. He allows the borrower to use his $100, and expects him to pay one dollar for that use.

A man can lend money to the U.S. Government, receiv­ing in return a savings bond on which is printed a table of exactly how much money the government will pay him after stated lengths of time, including both interest for the use of his money and repayment of the loan. In principle, buy­ing a government bond is the same as lending money to a friend. The practical difference is the great financial strength and reliability of the U. S. Government.

Besides savings bonds, the Federal Government borrows by issuing other types of bonds, as well as notes and certifi­cates. And state and local governments, business corporations, and other organizations also borrow money by selling bonds and notes.

When a person makes a savings or time deposit in a commercial bank, he is lending money to the bank, and the bank adds interest to his deposit. This is different from having a checking account in the same bank.

In buying a house or other real estate, the buyer usually borrows a large share of the price. He signs a mortgage - an agreement that if he fails to pay interest and to repay the loan on time, the lender can take possession of the house. Anyone with sufficient cash can invest by lending on mortgages, but most mortgage money is furnished by fi­nancial institutions specializing in that sort of loan.

   In a savings bank, savings and loan association or a credit union, an investor is usually called a member, and technically he does not lend to the institution. But the funds of these institutions are invested almost exclusively in loans, including mortgages on real estate, so that what a depositor-member owns is essentially a share in a group of loans. He receives income called "dividends," these being his share of the interest received by the institution on its loans. He is entitled to withdraw the same number of dollars that he has deposited, plus dividends, subject perhaps to delay if the institution is having trouble in collecting from its borrowers. Sometimes a savings institution finds it necessary to fore­close a mortgage on a borrower's property. By that action the institution ceases to be a lender and becomes an equity owner of that property. But the institution sells the property as soon as is practical, thus again becoming a lender.

Preparing for the risk of financially stormy weather in the future is oftentimes done better by carrying insurance than by saving and investing. life insurance is primarily a precaution against possible loss of income or extra expense that will occur if the insured person dies. At least part, and perhaps all, of the cost, called a premium, is an expense. But many policies have a cash surrender value, an amount recoverable while the insured person is living, and to that extent a life-insurance premium is an investment.

    A life-insurance company, like a savings institution, in­vests practically all of its assets in loans, mostly bonds and mortgages, and an insurance policy is a fixed-price contract, no matter whether it is settled by death or by surrender during the life of the insured person. To this ex­tent, life insurance resembles a loan or a savings deposit. An old-age pension is a kind of potential investment. Most pension plans have no cash value at any time. But some plans provide that no matter what happens, an em­ployee or his beneficiary will receive back at least the portion of the cost that he contributed. In such a plan, an employee's contribution, although perhaps made under com­pulsion, is clearly an investment.

After a worker has actually retired, in compliance with the rules of a pension plan he or his dependents may re­ceive benefits quite similar to the sort he might obtain by using his personally accumulated capital to buy life an­nuities from a life-insurance company, with benefits payable as long as the annuitants live. An annuity is a peculiar sort of investment, in that when benefit payments to an annuitant or beneficiary are completed, the capital put into the annuity is used up. The amount of a pension or annuity benefit is nearly always "fixed dollar."