Define: Investment

UK Accounting Glossary

Definition: Investment


Quick Summary of Investment


In finance and business, an investment is an asset purchased for profit, whether via income, or capital appreciation, or some combination. The entity making the investment is an investor. The opposite of making an investment, or selling the asset, is divestment. Investment has a connotation of a long-term holding period, in contrast to speculation, which is the purchase of assets seeking profit from short-term price movements. In practice, no precise definition distinguishes between investment and speculation. The expected return on investment, or expected ROI, is a measure of the attractiveness of an investment, whether anticipated or realized. In economics, investment represents capital expenditure by companies in an economy or economic model. In this context, investment is distinct from consumer expenditure, government expenditure, and net exports.



What is the dictionary definition of Investment?

Dictionary Definition


  1. The act of investing, or state of being invested.
  2. finance A placement of capital in expectation of deriving income or profit from its use or appreciation.
  3. That with which anyone is invested; a vestment.

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Full Definition of Investment


Investment is an important concept in economics. It is primarily connected to saving as well as consumption. Investment is defined as the purchase of new capital, which exposes a business to risk. The primary motive behind any form of investment is to make profits.

There are several ways in which investments may be made. An investor normally uses any good or financial resources at his possession in order to make investment instead of storing them. They can generate durable consumer goods and might also lend that particular good or financial resource to another individual or entity with a profit-making motive.

In the case of durable goods, the investor expects a better lifestyle as a result of financial resources generated by trading that group of consumer goods. In the case of resources, the investor turns into an entrepreneur. He creates goods and services with those financial resources and tries to generate sufficient profits.

At times investors may also operate as money lenders using their financial resources to create profits by charging interest on money lent by them. People who hold a certain amount of ownership in a business enterprise are also regarded as investors.

In describing macroeconomics, investments are often represented by “I”. During an economic downturn, investments are more strongly affected than consumption.

Types Of Investment

Investments are normally categorised according to their [risk] profile, and the chance they have to deliver high returns – their risk-reward profile. The major categories of investment are:

  • Stocks, traded on stock exchanges
  • Futures
  • Options
  • Index Funds
  • Mutual Funds, such as Franklin Templeton Investments
  • ETFs- Exchange Traded Funds
  • Bonds, including Corporate Bonds, Government Bonds and Municipal Bonds or Munis
  • Money market instruments such as Treasury Bills and Certificates of Deposit (CD)
  • Commodities
  • Currency investment, or Forex trading
  • Alternative investments, such as hedge funds, private equity, art and wine investing

Real estate investment has become an increasingly larger part of many investment portfolios, although property values have declined rapidly during the Financial Crisis. It involves the identification of investment properties, either commercial or residential, which can generate good rental incomes and/ or capital appreciation.

Investment Strategies

There are a number of different investment strategies and analysis approaches that investors use.

Fundamental analysis is the study of the economic and business performance of the asset being analyzed, while technical analysis focuses on technical factors in the movement of prices and volumes of transactions.

Value investing focuses on the identification of underlying assets which are cheap relative to their inherent value, whereas growth investing targets high growth companies or assets.

Investing is typically thought of as long term capital formulation and growth, whereas the shorter-term buying and selling of assets is usually defined as trading.


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https://payrollheaven.com/define/investment/
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Investment. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. March 28, 2020 https://payrollheaven.com/define/investment/.
Chicago Manual of Style (CMS):
Investment. PayrollHeaven.com. Payroll & Accounting Heaven Ltd. https://payrollheaven.com/define/investment/ (accessed: March 28, 2020).
American Psychological Association (APA):
Investment. PayrollHeaven.com. Retrieved March 28, 2020, from PayrollHeaven.com website: https://payrollheaven.com/define/investment/

Definition Sources


Definitions for Investment are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 9th February 2020.