The Oxford dictionary defines Investment as “the action or process of investing money for profit.”
In very simple terms, to invest is to put time, effort, money or resources etc into something with an expectation of an enhanced outcome.
For example, you can
- Invest in a person’s growth by teaching him, educating him
- Invest time and effort into creating this portal which will help all of u to understand investing better
- Invest money into stocks, shares, property, art, coins etc with an expectation to get something in return in the future.
In essence, investment involves putting in money, effort, or adding to a quality/attribute of a person to enhance the value in general terms.
We will be focussing on the 3rd point above when we talk about investment where the primary goal of putting money is to earn a profit or a return (obviously, you would want to earn more than what you put in).
The reason I talked about getting something in return in point 3 above is because of the idea of getting something in return includes getting
- A profit
- Or an interest or dividend (from growth or earnings from a company)
- Or your initial investment + additional increase because of growth/increase in value
Let’s take some examples in the context of money for better understanding of what an investment means:
- You buy a house with an intention to get rent from it. This is investment.
- You buy a house with an intention of selling it a higher price in 2 years. That’s an investment
- You buy a house to stay in there. That’s not an investment as your goal is different. It’s your primary residence and your primary goal here is to live in the house and not gain interest, profit or returns from it.
Similarly, let’s say you buy a painting from Da Vinci with an intention of making millions out of it, that’s an investment.
In the field of shares and stocks, some examples are:
Buying APPLE shares with an intention to
1. Selling it a higher price and later earning profit by doing so
2. Getting regular income from shares. Some companies distribute part of their profits with people who own their shares.
It is important to distinguish between “what a savings is” vis-a-vis “an investment”. You will find people around the world happy to hold the money in savings bank accounts at lower than 2% interest just because there are scared of the stock market. When you are savings money, the intention is to keep aside a sum to spend it later. A savings account isn’t created with the intention of growing the money or generating profits out of it.
You can refer to the following article on “What is Investing” and “How You can Start Investing” from Forbes as well as reference.
In the subsequent articles, we will expand the concept of investing further linking it back to the various elements or parameters at play when you think of an investment such as the “Concept of Time and Money” and the “Concept of Risk”. Happy Investing.