Lesson One – Investment Definition and Explanation

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Investment is one of the fundamental concepts in finance. No financial discussion, website or blog is complete without defining and explaining investment. I intend to write about investment in detail with reference to households and individuals, as a tutorial, starting from defining and explaining investment as a phenomenon and then slowly incorporating complex topics in further posts.

Definition of Investment

“Investment is the concept of putting ‘surplus’ money to things such as stocks, bonds, real estate, starting a new venture, buying a capital good etc. with a hope/forecast to have capital gains or continuous streams of positive net income from this employment of money.”

With reference to individuals, it is generally recommended to use surplus money for investments, as there is a very thin line between investing and speculating, so investment decisions should be made very wisely and with proper research and analysis. Investment always comes with a risk of losing the invested amount, and this loss would not be in the control of the investor then, it is always advisable to measure and research all risks involved.

Investment is a parallel concept to Savings, where savings is done with an intent to cope with increasing inflation, Investment on the other hand is done with and intention to earn revenue streams or have capital gains from money invested, and it also generates employment and increases the production level of a country. Individuals either save or invest their surplus money based on how much risk they are willing to take. More risk taking individuals prefer investing over savings.

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