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+Investing

Core idea

Investment involves financing/ owning businesses - perhaps by buying stocks or bonds, with the aim of getting a good return on investment and with little risk of loss.

Future Discount factor

For most people and organizations, x amount of money today is better than k__x amount of money one year from now, where k > 1. One reason for this is inflation.

Among individuals

Discount factor is much steeper in the short-term than in the long term. Many people will say I prefer x now rather than 1.25 x one month from now. But they will say I would rather get 1.25x 13 months from now rather than x 12 months form now.

Organizations

In calculating the tradeoff in investing towards avoiding an anticipated disaster vs fixing damages once a disaster happens, the discount factor is often used.

The discount factor that is to be used is controvertial. Some argue that it must be tied to the inflation rate or the government borrowing rate. But, USA keeps it at an unrealistic level of 1.07 as of 2012. This causes them not to invest as much in disaster prevention, fighting global climate change etc..

+Investing