Investment
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'''Investment''' or '''investing'''<ref>[[British English|British-]] and [[American English]], respectively.</ref> is a term with several closely-related meanings in [[business management]], [[finance]] and [[economics]], related to [[Saving (money)|saving]] or deferring [[Consumption (economics)|consumption]]. An [[asset]] is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future [[return (finance)|return]] or interest from it. The word originates in the Latin "vestis", meaning garment, and refers to the act of putting things (money or other claims to resources) into others' pockets. See [http://www.etymonline.com/index.php?search=invest&searchmode=none Invest]. The basic meaning of the term being an asset held to have some recurring or capital gains. It is an asset that is expected to give returns without any work on the asset per se.
==Types of investments==
The term "investment" is used differently in economics and in finance. Economists refer to a real investment (such as a machine or a house), while financial economists refer to a financial asset, such as money that is put into a bank or the market, which may then be used to buy a real asset.
=== Business Management ===
The investment decision (also known as [[capital budgeting]]) is one of the fundamental decisions of business management: managers determine the investment value of the assets that a business enterprise has within its control or possesion. These assets may be physical (such as buildings or machinery), intangible (such as [[patents]], software, goodwill), or financial (see below). Assets are used to produce streams of revenue that often are associated with particular costs or outflows. All together, the manager must determine whether the [[net present value]] of the investment to the enterprise is positive using the marginal [[cost of capital]] that is associated with the particular area of business.
In terms of financial assets, these are often marketable [[securities]] such as a company stock (an equity investment) or bonds (a debt investment). At times the goal of the investment is for producing future cash flows, while at others it may be for purposes of gaining access to more assets by establishing control or influence over the operation of a second company (the investee).
=== Economics ===
In [[economics]], investment is the production per unit time of [[Good (economics and accounting)|goods]] which are not consumed but are to be used for future production. Examples include tangibles (such as building a [[railroad]] or [[factory]]) and intangibles (such as a year of schooling or on-the-job training). In [[measures of national income and output]], '''gross investment''' ''I'' is also a component of [[Gross domestic product]] (GDP), given in the formula ''GDP = C + I + G + NX'', where C is consumption, G is government spending, and NX is net exports. Thus investment is everything that remains of production after consumption, government spending, and exports are subtracted.
''I'' is divided into non-residential investment (such as factories) and residential investment (new houses). '''Net investment''' deducts [[depreciation]] from gross investment. It is the value of the net increase in the capital stock per year.
Investment, as production over a period of time ("per year"), is not [[capital (economics)|capital]]. The time dimension of investment makes it a ''[[Stock and flow|flow]]''. By contrast, capital is a ''stock'', that is, an accumulation measurable ''at a point'' in time (say December 31st).
Investment is often modeled as a function of Income and Interest rates, given by the relation ''I = f(Y, r)''. An increase in income encourages higher investment, whereas a higher interest rate may discourage investment as it becomes more costly to borrow money. Even if a firm chooses to use its own funds in an investment, the interest rate represents an [[opportunity cost]] of investing those funds rather than loaning them out for interest.
=== Finance ===
In [[finance]], investment=cost of capital, like buying [[security (finance)|securities]] or other monetary or paper (financial) assets in the [[money market]]s or [[capital market]]s, or in fairly [[market liquidity|liquid]] real assets, such as [[gold]], [[real estate]], or collectibles. [[Valuation (finance)|Valuation]] is the method for assessing whether a potential investment is worth its price. [[Rate of return|Returns on investments]] will follow the [[risk-return spectrum]].
Types of financial investments include shares, other [[equity investment]], and [[bond (finance)|bonds]] (including bonds denominated in foreign [[currency|currencies]]). These financial assets are then expected to provide income or positive future cash flows, and may increase or decrease in value giving the investor capital gains or losses.
Trades in [[derivative (finance)|contingent claims]] or ''[[derivative (finance)|derivative]] securities'' do not necessarily have future positive expected cash flows, and so are not considered assets, or strictly speaking, securities or investments. Nevertheless, since their cash flows are closely related to (or derived from) those of specific securities, they are often studied as or treated as investments.
Investments are often made indirectly through [[intermediary|intermediaries]], such as [[bank]]s, [[mutual fund]]s, [[pension fund]]s, [[insurance]] companies, [[collective investment scheme]]s, and [[investment club]]s. Though their legal and procedural details differ, an intermediary generally makes an investment using money from many individuals, each of whom receives a claim on the intermediary.
=== Personal finance ===
Within [[personal finance]], money used to purchase [[shares]], put in a [[collective investment scheme]] or used to buy any asset where there is an element of capital risk is deemed an ''investment''. [[Saving]] within personal finance refers to money put aside, normally on a regular basis. This distinction is important, as [[investment risk]] can cause a capital loss when an investment is realized, unlike [[saving (money)|saving(s)]] where the more limited risk is cash devaluing due to [[inflation]].
In many instances the terms ''saving'' and ''investment'' are used interchangeably, which confuses this distinction. For example many [[deposit account]]s are labeled as ''investment accounts'' by banks for marketing purposes. Whether an asset is a saving(s) or an investment depends on where the money is invested: if it is cash then it is savings, if its value can fluctuate then it is investment.
===Real estate===
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In [[real estate]], investment is money used to purchase [[property]] for the sole purpose of holding or leasing for income and where there is an element of capital risk. Unlike other economic or financial investment, real estate is purchased. The seller is also called a Vendor and normally the purchaser is called a Buyer.
==== Residential real estate ====
The most common form of real estate investment as it includes the property purchased as other people's houses. In many cases the Buyer does not have the full purchase price for a property and must engage a lender such as a Bank, Finance company or Private Lender. Herein the lender is the investor as only the lender stands to gain returns from it. Different countries have their individual normal lending levels, but usually they will fall into the range of 70-90% of the purchase price. Against other types of real estate, residential real estate is the least risky.
====Commercial real estate ====
Commercial real estate is the owning of a small building or large warehouse a company rents from so that it can conduct its business. Due to the higher risk of Commercial real estate, lending rates of banks and other lenders are lower and often fall in the range of 50-70%.
== See also ==
<div style="-moz-column-count:3; column-count:3;">
* [[Appreciation]]
* [[Capital (economics)]]
* [[Capital accumulation]]
* [[Diversifying investment]]
* [[Divestment]]
* [[Financial economics]]
* [[Foreign direct investment]]
* [[Gold as an investment]]
* [[Investment specific technological progress|Investment-specific technological progress]]
* [[Investor profile]]
* [[Investor relations]]
* [[List of accounting topics]]
* [[List of economics topics]]
* [[List of economists]]
* [[List of finance topics]]
* [[:Category:Financial services companies by country|List of financial services companies (by country)]]
* [[List of management topics]]
* [[List of marketing topics]]
* [[Market trends]]
* [[Megaproject]]
* [[Optimism bias]]
* [[Over-investing]]
* [[Palladium as an investment]]
* [[Philatelic investment]]
* [[Psychology of previous investment]]
* [[Rate of return]]
* [[Reference class forecasting]]
* [[Regulation Fair Disclosure]]
* [[Right-financing]]
* [[Risk]]
* [[Saving (money)|Saving]]
* [[Silver as an investment]]
* [[Socially responsible investing]]
* [[Speculation]]
* [[Stock trader]]
* [[Strategic misrepresentation]]
* [[Value investing]]
</div>
== Notes ==
{{reflist}}
==External links==
* {{dmoz|Business/Investing/Stocks_and_Bonds/Equities/Research_and_Analysis/|Investing}}
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[[Category:Investment|Investment]]
[[Category:Macroeconomics]]
[[ar:استثمار]]
[[be-x-old:Інвэстыцыя]]
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[[ko:투자]]
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[[he:השקעה]]
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[[nl:Investering]]
[[ja:投資]]
[[pl:Inwestycja]]
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[[ru:Инвестиции]]
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[[th:การลงทุน]]
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[[zh:投资]]