What does it mean to "invest"?

By Jenny Kassan

When you think of the word “invest,” do you picture your money going into a company to help it grow? For example, if you go to your Schwab account and purchase some Apple stock, you may say to yourself – well, I know I’m sending my money out of my community to Silicon Valley, but at least I am contributing to an innovative U.S. company’s success?

Well, that is actually not what you are doing at all!

You are sending your money out of the community, but not to Apple!

The money you invest in the public markets isn’t actually producing any economic value (except for the finance industry).

When you buy a share of Apple or Amazon on the stock market, your money doesn’t go to those companies. It goes to another investor who wants to cash out. You’re buying a piece of paper (well, a digital record) from someone else—not helping a business grow. 

In fact, less than 1% of the money in the stock market goes directly to companies. The other 99% is just people trading with each other, trying to buy low and sell high. As Rana Foroohar of The Financial Times puts it, the financial sector has shifted from serving the real economy to extracting value from it.

So while Wall Street piles up profits, small businesses in our neighborhoods are starving for investment.

If we really want our money to do something real in the world, we need to reclaim our power as investors and recognize that we can put our money to work in ways that actually build the kind of world we want to live in.

That’s what I call true investing: putting your dollars into real businesses run by people you know and trust, solving problems you care about, and creating sustainable wealth.