Investment
Investment or
investing is a term with several closely-related meanings in
finance and
economics, related to
saving or deferring
consumption. An
asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future
return or interest from it. Literally, the word means the "action of putting something in to somewhere else" (perhaps originally related to a person's garment or '
vestment').
The major difference in the use of the term
investment in economics and finance is that economists are usually referring to a real investment - such as a machine or a house - but financial economists usually refer to a financial asset - money that is put into a bank or the market - which may then be used to buy a real asset.
Economics
* In
Economics, investment means the purchase (and thus the production) of
capital goods - goods which are not consumed but instead used in future production. Examples include building a
railroad, or a
factory, clearing land, or putting oneself through college. In a stricter sense, investment is also a component of
GDP given in the formula GDP = C + I + G + NX. The investment function in that aspect is divided into non-residential investment (such as factories, machinery etc) and residential investment (new houses).
* Investment is often modeled as a function of income and interest rates, given by the relation I = (Y, i). An increase in income will encourage higher investment, whereas a higher interest rate may discourage investment as it becomes costlier to borrow money. Even if a firm chooses to use its own funds in an investment, the interest rate represents an
opportunity cost of investing those funds rather than loaning them out for interest.
Finance
* In
finance, investment means buying
securities or other monetary or paper (financial) assets in the
money markets or
capital markets, or in fairly
liquid real assets, such as
gold as an investment,
real estate, or collectibles.
Valuation is the method for assessing whether a potential investment is worth its price.
* Types of financial investments include shares or other
equity investment, and
bonds (including bonds denominated in foreign
currencies). These investments assets are then expected to provide income or positive future cash flows, but may increase or decrease in value giving the investor capital gains or losses.
* Trades in
contingent claims or
derivative securities do not necessarily have future positive expected cash flows - so are not considered to be assets, or strictly speaking, securities or investments. Nevertheless, since their cash flows are closely related to (or derived from) those of specific securities, they are often studied as or treated as investments.
* Investments are often made indirectly through
intermediaries, such as
banks,
mutual funds,
pension funds,
insurance companies,
collective investment schemes, or even
investment clubs. Though their legal and procedural details differ, an intermediary generally makes an investment using money from many individuals, each of whom receives a claim on the intermediary.
Personal finance
* Within
personal finance, money used to purchase
shares, put in a
collective investment scheme or used to buy any asset where there is an element of capital risk is deemed an
investment.
Saving within personal finance refers to money put aside, normally on a regular basis. This distinction is important as
investment risk can cause a capital loss when an investment is realised, unlike
saving(s) where the more limited risk is cash devaluing due to
inflation.
* In many instances the term
saving and
investment are used interchangeably which confuses this distinction. For example many
deposit accounts are labeled as
investment accounts by banks for marketing purposes. To help establish whether an asset is saving(s) or an investment you should consider where your money is invested. If the answer is cash then it is
savings, if it is a type of asset which can fluctuate in value then it is
investment.
*
Value investing*
Appreciation*
Capital accumulation*
Divestment*
Financial economics*
Foreign direct investment*
Gold as an investment*
Investor profile*
Investor relations*
Over-investing*
Philatelic investment*
Regulation FD*
Return on investment*
Saving*
Silver as an investment*
Speculation*
Stock investor*
Trend*
Socially responsible investing*
Ethical investing*
Megaproject British- and
American English, respectively.
*
Investing textbook - in Wikibooks
*
Financial Times*
Wall Street Journal*
Yahoo! Finance*
Investopedia*
NASDAQ*
Google Finance
