John Rotonti begins with the basics of why we are committed to long term investing and what this truly means.
Transcript
John Rotonti: Hi, Fools. I'm John Rotonti. I'm a Senior Analyst and the Head of Investor Training and Development at the Motley Fool. This is the first educational video we're providing in a series of videos that build off our internal Investor Development Program or IDP. We want to share this with our members so we can continue our mission to help make the world smarter, happier, and richer. Let's start with, what is long term investing? I'm specifying long term because that's what we practice at the Fool but also because I'd like to briefly highlight the differences between investing and more short term savings. I would like us to think of savings as putting cash somewhere, usually in a bank account, where we're earning low returns in today's low interest rate world, but where we can access that money quickly and easily to cover cash needs in the short term. The cash just sits there as cash. With savings, you are not buying a security or asset like a stock, a bond, or a piece of real estate, and therefore, you don't have to sell anything to access your cash and you don't have to pay a tax on any capital gain, although you do pay tax on interest income. But with investing, think more of long term in nature and think about buying an asset like a stock or a bond, rather than just storing your money somewhere like with savings. Investing, when done right, has the potential to earn higher returns than you can in a savings account and hopefully you're not investing money you need for the next 3-5 years, rather, that's what savings are for. Because you were buying something, hopefully you can sell it at a gain far into the future. Many people are investing through tax deferred or tax advantaged accounts. But if you aren't, then you pay taxes on any dividend income, plus on the capital gain, if you sell the asset at a higher price than what you bought it for. One simple way to think of the difference between savings and investing is that savings is in the form of cash, and investing is everything else. It's when you use your cash to buy something else. This is an oversimplification and we could get into semantics about whether a low interest rate bond bought at face value is savings or investing. But I think most people are not putting short term money into bonds. I am going to classify that as investing.
