Investment is the process of committing resources to achieve later benefits. It involves putting capital to use today in order to increase its value over time. Here are some key points about investment:
- An investment can be defined as "to tailor the pattern of expenditure and receipt of resources to optimize the desirable patterns of these flows".
- When expenditure and receipts are defined in terms of money, then the net monetary receipt in a time period is termed as cash flow, while money received in a series of several time periods is termed as cash flow stream.
- The purpose of investing is to generate a return from the invested asset. The return may consist of a gain (profit) or a loss realized from the sale of a property or an investment, unrealized capital appreciation (or depreciation), or investment income such as dividends, interest.
- An investment can refer to any medium or mechanism used for generating future income, including bonds, stocks, real estate property, or alternative investments.
- Investing typically involves taking on more risk than saving.
- Investment is usually the result of forgoing consumption. In a more modern society, we allocate our productive capacity to producing pure consumer goods such as hamburgers and hot dogs, and investment goods such as semiconductor foundries.
- Investing works when you buy an asset at a low price and sell it at a higher price. This kind of return on your investment is called a capital gain.
In summary, investment is the process of committing resources to achieve later benefits, with the goal of generating income or appreciation over time. It involves putting capital to work, in the form of time, money, effort, etc., in hopes of a greater payoff in the future than what was originally put in. An investment can refer to any mechanism used for generating future income, including bonds, stocks, or real estate property, among other examples.
