Investment or investing^[1] is a term with several closely-related meanings in business management, finance and economics, related to saving or deferring consumption. Management (covering theory practice and scope of management and Manager' (covering the people who manage might help clarify and systematise The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated Economics is the social science that studies the production distribution, and consumption of goods and services. In common usage saving generally means putting money aside for example by putting money in the bank or investing in a Pension plan In economics consumption is the primary motivating force in the wealth or utility maximizing paradigm An asset is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return or interest from it. In Business and Accounting, assets are everything owned by a person or company (all tangible and intangible property that can be converted into cash. Returns, in economics and political economy are the distributions or payments awarded to the various suppliers of the Factors of production. 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 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 assets that the business enterprise obtains. Capital budgeting (or investment appraisal is the planning process used to determine whether a firm's long term Investments such as new machinery replacement machinery new These assets may be physical (such as buildings or machinery), intangible (such as patents, software, goodwill), or financial (see below). A patent is a set of Exclusive rights granted by a State to an inventor or his assignee for a fixed period of time in exchange for a disclosure of an The manager must assess whether the net present value of the investment to the enterprise is positive; the net present value is calculated using the enterprise's marginal cost of capital. Net present value ( NPV) or net present worth ( NPW) is defined as the total Present value (PV of a Time series of Cash flows The cost of capital is an Expected return that the provider of capital plans to earn on their investment

A business might invest with the goal of making profit. These are marketable securities or passive investment. A security is a Fungible, Negotiable instrument representing financial value It might also invest with the goal of controlling or influencing the operation of the second company, the investee. These are called intercorporate, long-term and strategic investments. Hence, a company can have none, some or total control over the investee's strategic, operating, investing and financing decisions. One can control a company by owning over 50% ownership, or have the ability to elect a majority of the Board of Directors.

Economics

In economics, investment is the production per unit time of goods which are not consumed but are to be used for future production. Economics is the social science that studies the production distribution, and consumption of goods and services. Examples include tangibles (such as building a railroad or factory) and intangibles (such as a year of schooling or on-the-job training). A factory (previously manufactory) or manufacturing plant is an industrial Building where workers manufacture goods 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. Depreciation is a term used in Accounting, Economics and Finance to spread the cost of an Asset over the span of several years 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. In Economics, capital or capital Goods or real capital refers to items of extensive value The time dimension of investment makes it a flow. business Accounting, and related fields often distinguish between quantities which are stocks and those which are flows. 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. Opportunity cost or economic opportunity loss is the value of a product forgone to produce or obtain

Finance

In finance, investment=cost of capital, like buying securities or other monetary or paper (financial) assets in the money markets or capital markets, or in fairly liquid real assets, such as gold, real estate, or collectibles. The field of finance refers to the concepts of Time, Money and Risk and how they are interrelated A security is a Fungible, Negotiable instrument representing financial value In Finance, the money market is the global Financial market for short-term borrowing and lending The capital market is the Market for securities, where companies and Governments can raise longterm funds Market liquidity is a Business, Economics or Investment term that refers to an Asset 's ability to be easily converted through an act of buying Gold (ˈɡoʊld is a Chemical element with the symbol Au (from its Latin name aurum) and Atomic number 79 Real estate is a legal term (in some jurisdictions notably in the USA, United Kingdom Valuation is the method for assessing whether a potential investment is worth its price. In Finance, valuation is the process of estimating the Market value of a financial Asset or Liability. Returns on investments will follow the risk-return spectrum. In Finance, rate of return ( ROR) also known as return on investment ( ROI) rate of profit or sometimes just return, is The risk-return spectrum is the relationship between the amount of return gained on an Investment and the amount of Risk undertaken in that investment

Types of financial investments include shares, other equity investment, and bonds (including bonds denominated in foreign currencies). Equity investment generally refers to the buying and holding of shares of Stock on a Stock market by individuals and funds in anticipation of income from In Finance, a bond is a Debt security, in which the authorized issuer owes the holders a debt and is obliged to repay the principal and Interest A currency is a unit of exchange, facilitating the transfer of Goods and/or services It is one form of Money, where money is 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 contingent claims or derivative securities do not necessarily have future positive expected cash flows, and so are not considered assets, or strictly speaking, securities or investments. Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments Derivatives are Financial instruments whose values depend on the value of other underlying financial instruments 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 intermediaries, such as banks, mutual funds, pension funds, insurance companies, collective investment schemes, and investment clubs. For a publishing house associated with the name of Leo Tolstoy see Intermediary (publisher An intermediary is a third party that offers A banker or bank is a Financial institution whose primary activity is to act as a payment agent for customers and to borrow and lend money A mutual fund is a professionally managed type of collective investments that pools money from many investors and Invests it in Stocks bonds, A pension fund is a pool of assets forming an independent legal entity that are bought with the contributions to a Pension plan for the exclusive purpose of financing pension Insurance, in Law and Economics, is a form of Risk management primarily used to hedge against the Risk of a contingent loss A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than those feasible for most individual investors An investment club is a group of individuals who meet on a regular basis for the purpose of investing money 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. Personal finance is the application of the principles of Finance to the monetary decisions of an individual or family unit In financial markets, a share is a Unit of account for various financial instruments including Stocks Mutual funds Limited partnerships A collective investment scheme is a way of investing money with other people to participate in a wider range of investments than those feasible for most individual investors Saving within personal finance refers to money put aside, normally on a regular basis. In common usage saving generally means putting money aside for example by putting money in the bank or investing in a Pension plan This distinction is important, as investment risk can cause a capital loss when an investment is realized, unlike saving(s) where the more limited risk is cash devaluing due to inflation. On ground of assurance of the return there are two kinds of Investments - Riskless and Risky. In common usage saving generally means putting money aside for example by putting money in the bank or investing in a Pension plan In economics inflation or price inflation is a rise in the general level of prices of goods and services over a period of time

In many instances the terms saving and investment are used interchangeably, which confuses this distinction. For example many deposit accounts are labeled as investment accounts by banks for marketing purposes. A deposit account is a current account at a Banking institution that allows money to be deposited and withdrawn by the account holder with the transactions and resulting balance 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

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. Real estate is a legal term (in some jurisdictions notably in the USA, United Kingdom Property is any physical or virtual entity that is owned by an individual 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

Notes

External links

• Investing at the Open Directory Project