Do You Have a Vested Interest?

by Investing School on November 4, 2011

You hear the term “vested interest” in many contexts, but when looking at financial matters the definition is fairly specific. Either your vested interest gives a party the right to gain a specific asset, now or in the future, or it indicates a stake in a particular action wherein you expect to gain a benefit.

Pension plans often require a certain vesting period. This is the time an employee must spend with a company to qualify for specific retirement benefits. The length of the vesting period varies, and sometimes a partial vesting occurs at one point while full vesting occurs at another time. There may be restrictions related to the total amount withdrawn annually as well.

In the case of a vested stake, the outcome of the situation affects the party involved. A classic example would be: if you loan someone money to get a business off the ground, you would have a vested interest in seeing the business succeed so you get your investment back, preferably with a profit.
This situation describes not only a financial vesting, but a personal one as well, as ego is involved. No one likes to think that they have taken an unreasonable risk when investing their capital.

When relating vested interest to non financial matters, the degree to which an individual is affected by the condition often determines their level of emotional response. For example, a 15 year old would be considerably more distressed by a referendum to raise the driving age from 16-18 than someone who is 25 and already licensed.

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