Investment

Investing, broadly, is putting money to work for a period of time in a project or undertaking to generate positive returns (profits that exceed the amount of the initial investment). It's the act of allocating resources, usually capital (i.e., money), with the expectation of generating an income, profit, or gains.

You can invest in many types of endeavors, either directly or indirectly. You might use money to start a business or buy assets such as real estate in hopes of generating rental income or reselling it later at a higher price.

Investing also differs from speculation, as evidenced by the investor's timeframe. Speculators are typically looking to gain from short-term price fluctuations that occur in weeks, days, or even minutes. Investors usually consider that a greater period of time, like months or years, is needed to generate acceptable returns.

Keynotes

Investing involves deploying capital (money) toward projects or activities expected to generate a positive return over time.

The type of returns generated depends on the type of project or asset; real estate can produce both rents and capital gains; many stocks pay quarterly dividends; bonds tend to pay regular interest.

In investing, risk and return are two sides of the same coin; low risk generally means low expected returns, while higher returns are usually accompanied by higher risk.

Investors can take the do-it-yourself approach or employ the services of a professional money manager.

Whether buying a security qualifies as investing or speculation depends on four factors: the amount of risk taken, the holding period, the frequency of the investment activity, and the source of returns.

Understanding Investing

Investing is to grow one's money over time. The core premise of investing is the expectation of a positive return in the form of income or price appreciation with statistical significance. The spectrum of assets in which one can invest and earn a return is vast.

Risk and return go hand-in-hand in investing; low risk generally means low expected returns, while higher returns are usually accompanied by higher risk. At the low-risk end of the spectrum are basic investments such as certificates of deposit (CDs). Bonds or fixed-income instruments are higher up on the risk scale, while stocks or equities are regarded as riskier.