Understanding the Basics of Investment

What is investment? Simply put, investment means buying an object or an asset with the intention of making money from the investment or even the rental return of that asset which is basically an increase in the purchasing value of that asset over a definite period of time. Now, what is the definition of investment? According to Merriam Webster’s dictionary: “the making or earning of profits; income.”

For the purpose of this article, we define investment as: Investing on behalf of one or more persons, the payment or return of which is determined by the value of principal and interest or some combination thereof. This definition leaves a lot of room for people to interpret investments in different ways, but we will stick with the more common definitions. Some common types of investments include stocks, bonds, mutual funds, real estate property and securities like currencies, interest rates, and stock indexes. Depending on how you want to define investment, the method of selection for your assets will differ.

Some of the more common categories of investments include: Long-term bonds (like pension funds), stocks (real estate, company stocks, etc. ), mutual funds, and money market instruments like bonds, treasury bills and certificates of deposits. As the number of categories increases, you can also include options such as options, derivatives (derivatives are financial products that allow for the transfer of one variable to another), commodity markets, and foreign exchange. All of these categories have different characteristics to them, and you should be aware of the details for each before you start investing so that your portfolio is as balanced as possible.