What is an 'Investment'
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.
BREAKING DOWN 'Investment'
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.
Taking an action in the hopes of raising future revenue can also be an investment. Choosing to pursue additional education can be considered an investment, as the goal is to increase knowledge and improve skills in the hopes of producing more income.
Investment and Economic Growth
Economic growth can be encouraged through the use of sound investments at the business level. When a company constructs or acquires a new piece of production equipment in order to raise the total output of goods within the facility, the increased production can cause the nation’s gross national product (GDP) to rise. This allows the economy to grow through increased production, based on the previous equipment investment.
An investment bank provides a variety of services designed to assist an individual or business in increasing associated wealth. This does not include traditional consumer banking. Instead, the institution focuses on investment vehicles such as trading and asset management. Financing options may also be provided for the purpose of assisting with the these services.
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.