Loading the player...

What is an 'Investment'

An investment is an asset or item that is purchased with the hope that it will generate income or 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 later 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, a 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 considered an investment. For example, when choosing to pursue additional education, the goal is often to increase knowledge and improve skills in the hopes of ultimately producing more income.

For more on financial investments, see Security and Investing 101: Types Of Investments.

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 domestic product (GDP) to rise. This allows the economy to grow through increased production based on the previous equipment investment.

Investment Banking

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.

  1. Speculator

    A person who trades derivatives, commodities, bonds, equities ...
  2. Speculative Stock

    A speculative stock is a stock with a high degree of risk, such ...
  3. Speculation

    The act of trading in an asset, or conducting a financial transaction, ...
  4. Speculative Capital

    The funds earmarked by an investor for the sole purpose of speculation. ...
  5. Investment Income

    Income coming from interest payments, dividends, capital gains ...
  6. Investment Ideas

    Investment ideas are specific views, plans or ideas on ways to ...
Related Articles
  1. Investing

    The Art Of Speculation

    Speculators believe that the market overreacts to a host of variables. These variables present an opportunity for capital growth.
  2. Investing

    Defining the 3 types of investments

    Investments are expected to produce income or profit. They can be broken down into three basic groups: ownership, lending and cash equivalents.
  3. Investing

    5 Popular Portfolio Types

    Learning how to build these five types of portfolios will increase your investing confidence and give you financial control.
  4. Investing

    Introduction To Growth Investing

    There are principles and techniques that are applicable for many different types of investors and growth strategies.
  5. Managing Wealth

    Asset Allocation: The First Step Toward Profit

    Understanding the different asset classes is an essential part of portfolio diversification.
  6. Financial Advisor

    Simplify Your Portfolio

    Faced with an overabundance of choices, many investors forget to stick to the basics.
  7. Investing

    Timeless Ways To Protect Yourself From Inflation

    Inflation is a natural part of modern life - but there are some ways to cover your assets.
  1. Do speculators have a destabilizing effect on the financial system?

    A speculator is anyone who trades derivatives, commodities, bonds, equities or currencies with higher-than-average risk in ... Read Answer >>
  2. What is the difference between speculation and gambling?

    Learn about speculation and gambling, examples of speculation and gambling, and the main difference between a speculator ... Read Answer >>
  3. What is the difference between hedging and speculation?

    Hedging and speculation are very different in purpose, function and risk profile. Find out how and why investors use both. ... Read Answer >>
  4. What are the macroeconomic effects of allowing stock buying on margin?

    Learn about the macroeconomic effects of allowing stock purchases on margin, such as increasing present access to investment ... Read Answer >>
  5. Can investments be consumed immediately?

    Learn about what immediate consumption means for assets. Find out how consumption impacts investing choices and planning ... Read Answer >>
Hot Definitions
  1. Standard Deviation

    A measure of the dispersion of a set of data from its mean, calculated as the square root of the variance. The more spread ...
  2. Entrepreneur

    An Entrepreneur is an individual who founds and runs a small business and assumes all the risk and reward of the venture. ...
  3. Money Market

    The money market is a segment of the financial market in which financial instruments with high liquidity and very short maturities ...
  4. Perfect Competition

    Pure or perfect competition is a theoretical market structure in which a number of criteria such as perfect information and ...
  5. Compound Interest

    Compound Interest is interest calculated on the initial principal and also on the accumulated interest of previous periods ...
  6. Income Statement

    A financial statement that measures a company's financial performance over a specific accounting period. Financial performance ...
Trading Center