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What is an Investment? (START HERE)

Discussion in 'What is Investing? (START HERE)' started by InvestOpen, Jul 4, 2018.

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  1. InvestOpen

    InvestOpen Administrator Registered

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    What is investing?
    Whenever a person commits capital or its equivalent with an expectation that the outcome will produce greater value than the input, they have invested. While investing typically involves using money to purchase an asset that will generate gains, involve the purchase of services, or intermediary items that enable investing.

    In everyday life, people talk about investing in either themselves or others, typically with the expectation that the returns on that investment will occur sometime in the future. Investing involves four components:
    1. Investor: The person who provides the initial capital, asset, or similar to purchase the asset which will generate the future gains
    2. Initial Input: Whether money or trade is used, the initial input (sometimes referred to as the investment) purchases the asset or service that will generate future gains
    3. Asset or Service (Investment): Regardless of whether a person purchases an asset (house) or a service (education) the investment is expected to provide gains for the investor
    4. Gains: The expected income or value that exceeds the initial input
    Oftentimes people use the word investment to mean both the initial spend on the asset or the asset itself that will generate the future gains

    Investments can be undertaken by groups or by individuals. Companies can invest in equipment upgrades to make their production more efficient to lower production costs in the future. Individuals can invest in an education now with the expectation that they will be compensated with higher salaries in the future.

    While most people think of investing typically in terms of buying stocks, it is important to remember that there are a wide variety of options that are often overlooked. Simple things such as adding insulation to one’s home to lower utility bills can sometimes provide a better return than the best year in the stock market.

    Regardless of which type of investment you make, from stocks to bonds, real estate to small businesses, investments can always be evaluated in the same manner. When the probability of expected future gains is outweighed by the stronger likelihood of losses, you are gambling instead of investing. Investments don’t always work out. Nevertheless, the likelihood that they do work out, and the value of those gains should outweigh the opposite situation.

    Why Do People Invest? >

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    Last edited by a moderator: Aug 1, 2018
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