For most of us, the question, ‘What is investment?’ Tends to be an elusive answer. We have all heard the phrase ‘risky business,’ but without a solid understanding of what investment means, it is almost impossible to grasp its true definition. This article provides a general overview of investment and some of its basic definitions.
In simplest terms, the investment is any expenditure
that is used for the purpose of increasing the value of an asset or business. The amount or value of an investment will be determined by a number of factors, such as the income potential of the asset, its current value, the expected future returns on that asset, the interest rate, the risk-to-capital ratio, the cost of ownership, and other relevant factors. In short, investment means the buying or selling of property, stocks, bonds, mutual funds, real estate, and the like.
An example of investment is purchasing stock in a company whose stock price is expected to increase in value over the next few years or investing in an asset such as real estate or agricultural land that is expected to increase in value in the coming years. In essence, an investment refers to any expenditure that is used to purchase assets for the purpose of making the value of that asset higher.
In addition to the types of asset discussed above, an investment refers to any activity or process that produces some tangible results. Examples of activities that are considered to be investments include: leasing real estate to tenants, buying shares in a publicly traded company, or creating products and/or services that can be sold for profit. While these examples are not strictly classified as investments, they do produce tangible results which may result in increased value over time. Another common form of investment is the purchase of a particular asset or property, in return for the payment of an interest rate (e.g., mortgage), or perhaps even the option of purchasing the asset or property for a future date (e.g., option stock). The difference between these two forms is that an option is not purchased until it is bought, whereas an option stock is purchased when the company has already acquired it.
An important aspect of defining investment is the consideration of timing.
Although an investment generally refers to a transaction or process that produces either financial or material results, it can also refer to a particular time period. For example, if you are interested in buying shares in a publicly traded company with the intention of holding them until the company’s stock price increases in value, or you own shares of the company but have not purchased the stock yet, you could be considered to be an “asset investor.”
- Financial investment is considered to be a broad category that involves investment in any type of asset,
- But is especially popular in the context of equities.
- In addition to financial securities, companies, the stock market, business loans, and real estate are all examples of investment.
Business financing is another broad category that covers business ventures, business loans, credit cards, commercial real estate, and mortgages.
There are several different types of businesses and organizations that fall into this category. Business, also called corporations, are owned by a single person. This individual must have both personal and corporate credit, to be able to operate the business.
Common types of partnerships are limited liability corporations. A limited liability corporation is a legal entity that is formed specifically to operate as a legal entity. The assets of a limited liability company cannot be liquidated except by a court order. A partnership is a business that is owned jointly by two or more people.