You've no doubt read many biographies of rich people in which they extol the virtues of investments as the method that has brought them such wealth. The perception is that normal people slave away at used woodworking machinery to bring home a crust for their families while supernaturally gifted investors watch their money pile up with just a few clicks of a computer mouse. But it isn't true. Anyone can make investments and making serious money through this method requires a lot of work.

The expression "you have to spend money to make money" is the basic principle behind investing. When you make an investment, you're giving money to someone who thinks they have a great idea. With your help, they open a casino or build Puerto Vallarta villas and make money. As payment to you for helping them get started, this person pays you a certain percentage of money from his or her profits, which hopefully amounts to more than the amount of money you invested in the first place.

The major difficulty people run into when they're trying to make investments is how to tell the people whose ideas will work from the people whose ideas won't work. The first type earns profits for investors, the second loses their money. This is where investment companies come into play. Investment companies like Charles Schwab or Merryl Lynch or even your government pension plan act like a bond tester. They do the risk assessment for you in exchange for a fee.

If you plan on making investments without the aid of a bank or financial institution, you're taking a much bigger risk. To have any chance of your investment paying off, you need to put a lot of time into researching the cloth diapers company you are considering. You'll need to know about any businesses they tried before, what they're education is, whether they've ever declared bankruptcy, what their credit rating is, how well their product is likely to be received by consumers. Do you know where to find this information?

Investment always involves a certain amount of risk, but generally the bigger the risk the higher the potential for a large payout. This is how successful investors have made heaps of money. In order to spread the risk around, however, most people don't put all their money into horse waterers or pork bellies. They spread it around, perhaps putting a little into computers and another portion into banks and another portion into gold.