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Let's keep this simple. Everyone invests for the same reason, and that reason is to accumulate wealth. Notice I didn't say to get rich, but rather to accumulate wealth.

The reason you should invest is because investing in bonds, stocks, funds, precious metals, commodities, etc. typically yield higher returns than stuffing your money in your mattress. No one wants to work until they're 90, so we take whatever amount of excess money we have each week, month or year and give it to someone else to run their business in hopes that their business will make money and they will repay us more than we loaned them. That is the definition of investing.

There are different risk levels of investing based on where you put your money and what that person does with your money. For example, if you put your money in a savings account, the bank will loan it to someone else to buy a home. That loan is secured by the house, and therefore if the borrower doesn't repay the bank, the bank can take the house and resell it to get the money back. This makes investing with a bank a very safe investment.

Of course, as you pursue larger returns, the risks go up considerably. When you invest in a mutual fund, you are buying a very small percentage of ownership of many, many companies. Your return will depend 100% on the financial performance of those companies AND other investors' reaction to that performance. If the companies generate large profits, then more people will buy the stock and the price will rise, at which point you can sell your shares and recognize a profit.

In summary, you should invest because it is the best way to turn your $1 today into $2 tomorrow.

Learn more about this author, Trip Todd.
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