The Oxford dictionary defines Investment as “the action or process of investing money for profit.”
In very simple terms, in my mind, to invest is to put something into something to result in an outcome.
For example, you can
- Invest in a person’s growth by teaching him, educating him
- Invest time and effort into doing something that help you achieve an outcome
- 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 your initial investment + additional increase because of growth or 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. Sell it a higher price 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.