By: Parker Bazaz
Definition
An investment is an asset or item acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the value of an asset over time. Some of these assets can be bonds, stocks, real estate, and property. An investment always involves putting in resources such as time, effort, money into an asset at the time of purchase, in hopes for a profit in the future.
Risk
Investing is oriented towards the potential for future growth or income, therefore a certain level of risk is associated with investments. The risks of investing is that it may not generate any income, or depreciate in value over time. An example of risk is investing in the stock of a company, and the company goes bankrupt and your investment loses value.
An investment's return and risk should have a positive correlation meaning that if there is a large risk then the possible return should be large as well, and vice versa. This forces investors to gauge their appetite for risk and each investor is different as the appetite for risk changes throughout an investors life. For example, if an investor is close to retirement their appetite for risk will be much lower than a younger investor.
Types of Investments
Stocks are a type of investment. A stock is a piece of ownership of a public or private company. By owning stock, the investor may be entitled to dividend distributions from the company. If the company becomes more successful and other investors also seek to buy that company's stock, its value can increase and be sold to generate a return. In addition, stocks are often classified as being either growth or value investments. The strategy of investing in growth stocks is investing while the company is small before it achieves market success. On the other hand, Investment in value stocks is the strategy of investing in a more established company whose stock price may not appropriate value the company.
Additionally real estate is a type of investment. Real estate is defined as investments in physical, tangible spaces that can be utilized. Real estate investments may include purchasing sites to develop for specific uses, or purchasing ready-to-occupy operating sites. Examples of real estate include land, buildings, warehouses, and residential property. These tangible assets can depreciate in value or appreciate in value depending on many factors.
Conclusion
Investing is a crucial part to building towards any financial goals one may have. Moving forward, it's important to research one's investments in order to truly understand where one's money is going. Today we covered just two of the numerous types of investments out in the world, along with the definition of investing and the risk associated with investing. Let's continue to educate ourselves about investing and the many other ways of achieving any financial goals!
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