What is an Investment?

Definition

An investment is an asset bought by an individual or organization with the expectation that it will generate some future income or profit—Examples of investments may include stocks and real estate.

Understanding investments

When you make an investment, you trade resources (like money or credit) for assets (like stocks or real estate) in an attempt to gain future benefits. For example, an investor might purchase stocks believing that they’ll appreciate in value or to collect dividend payments. A student might invest in a college degree with the hope of starting a fulfilling career. Investments are often thought of in terms of money, but you can also invest other resources, like time and labor (like a business might do). An investment can produce losses if the acquired asset’s value decreases or if other realized benefits (think of rent payments for a rental property) don’t meet expectations. Where there’s a potential for reward, there’s also risk.

EXAMPLE

Imagine that a few years ago, as the 2014 holiday season approached, you noticed that most of your friends and family were buying gifts online. You became convinced that e-commerce was the future, so on Jan. 6, 2015, you bought 10 shares of Amazon at $300 per share. Fast forward to Feb. 11, 2020; Amazon stock is selling at a much higher price of $2,150 per share. You decide to sell yours. The 10 shares you invested in are now worth $21,150 — Netting you a profit of $18,500 before taxes, trading fees, and other costs are deducted. Of course, hindsight is 20/20; many investments don’t always pan out. If you had bought J.C. Penny stocks on Jan. 6, 2015 at $7.90, each share would have been worth only about 73 cents on February 11, 2020.

Source: Robinhood