Investment, What Does It Mean?

The word "investment" means the purchase of assets

, where an "asset" is defined as something which generates value. This value can be cash income or an increase in the value of the asset, and needs to be distinguished from work where the worker gets paid for their effort or time. Investment occurs at all scales of finance from personal finance up to the financial strategies of whole countries.

A business is fundamentally involved in investment. A business owns assets (as well as liabilities, things which cost money to own) which can be physical or not, and those assets are used to generate cash flow, other assets, or both.

Every asset will have some degree of risk associated with it as well as it's likelihood of generating an increase in value. Assets are such things as property, land, bonds, financial derivatives such as futures or options, commodities, stocks, and businesses. The fundamental decisions in investing are about the estimation of likely risk and reward for different assets.

The risk of an investment not only includes the risk that zero value will be generated but also the risk that the original sum invested can be partially or wholly lost. Risks and returns also change over time.

Real estate is one common form of investment, and residential real estate is usually considered to be less risky than commercial real estate. There are lots of misunderstandings about real estate investment, including false concepts on what investment is compared to speculation.

Other assets used for investment can include such things as stocks, shares, commodities, metals (such as gold or silver), jewelry, bonds, art, and many other things. As with any type of investment, there will be risks associated with each of these asset categories, as well as potential gains in value from owning them for a particular period of time.

by: Thomas Goldman

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