An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate in the future. In an economic sense, an investment is the purchase of goods that are not consumed today but are used in the future to create wealth. In finance, an investment is a monetary asset purchased with the idea that the asset will provide income in the future or will be sold at a higher price for a profit.
The term “investment” can be used to refer to any mechanism used for the purpose of generating future income. In the financial sense, this includes the purchase of bonds, stocks or real estate property. Additionally, the constructed building or other facility used to produce goods can be seen as an investment. The production of goods required to produce other goods may also be seen as investing.
The income that results from investing can come in many forms, including profit, interest earnings, or appreciation. Investing refers to long-term commitment, as opposed to trading or speculating, which are short-term and often deal with heavy turnover and, consequently, a higher amount of risk.
Investing is the key to building wealth, but investing in and of itself is not enough. You have to invest wisely! Investing is risky, as the business you invest in could go down in value or even close down completely. It is important to research the business and analyze the risk of investing before putting money down.
Types of Investment
There are two major kinds of investment: fixed income and variable income. Fixed income investment refers to an investment that brings in a set amount of interest income on a regular basis, such as bonds or fixed deposits. Variable income investment refers to business or property ownership.
An investment product is a product purchased with the expectation of earning a favorable return. Investment products can be income-producing, as with fixed-interest earning products, or more speculative in nature, as with stocks and options. A wide variety of investment products exist, including, but not limited to, stocks, options, futures, bonds, mutual funds, certificates of deposit, money market investments, ETFs and annuities.
Investment products are available for individual and institutional investors, and are purchased in an attempt to generate a profit. Some investment products, such as certain types of bonds, provide a fixed interest payment in addition to a return of the initial investment at the time of maturity. Other types of investment products, such as stocks, entail greater risk and while earnings (and profits) are anticipated, they are not guaranteed. An investor who diversifies will have a variety of investment products in his or her portfolio to manage risk.
Investments and Speculation
Speculation is a separate activity from making an investment. Investing involves the purchase of assets with the intent of holding them for the long-term, while speculation involves attempting to capitalize on market inefficiencies for short-term profit. Ownership is generally not a goal of speculators, while investors often look to build the number of assets in their portfolios over time.
Although speculators are often making informed decisions, speculation cannot usually be categorized as traditional investing. Speculation is generally considered higher risk than traditional investing, though this can vary depending on the type of investment involved.
History of Investing
The New York Stock Exchange (NYSE) first opened in 1792, and it remains today one of the world’s leading exchanges. Most of the established banks that dominate the investing world began in the 1800s, including Goldman Sachs and J.P. Morgan. In the early 1900s, the term investing was highly intertwined with trading, speculating, and other terms that are now seen to be more risky and refer to short-term endeavors. Around the 1950s, investing was distanced from these other terms and became known as a longer-term, more reliable way to purchase securities.