Investment Definition

Published by SD Desk on

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Investment word refers to money spent on assets to make a profit. Investment in simple words is all about funds allocation in assets to make gains. The outcome of an investment is always profits.

When you buy a machine to manufacture a product for sale, it is your investment. Or, when you start a business, you are actually making an investment to generate returns.

When you spend money on buying a pair of shoes, clothes, etc. for personal use, it is a mere expense not an investment. Personal use of goods and services don’t yield profits. Instead, you obtain personal benefits.

On the other hand, when you buy a tractor to offer ploughing services to your local farmers, you are making an investment, not an expense. It is because you won’t render free services to your farmers but you will serve them for a profit.

Investment is always asset expenditure. Assets have economic value. An asset has economic value when it allows you make income or profits. For example, tractor to provide ploughing service is an asset.

Similarly, a machine bought by you to create goods for customers is an asset. And, constructing an apartment for making rental and lease income is also an asset.

Investment is done by investors – people who have financial capacities to allocate money to acquire assets. Investors may or may not have their own money. They may secure money from banks, and other lenders.

Investment has four inseparable components – person, money, asset, and profits. Investment happens when a person (investor) has available money to acquire an asset for making a profit. Absence of one or two components, say for example, person doesn’t constitute investment.

Investment opportunity is an area where you spend your money to expect returns or gains. Businesses are investment opportunities as they give you back returns. When your locality lacks a grocery store, you go for it to sell groceries, and make profits.

In conclusion, if you have to define word investment, define it as a financial activity performed to yield profits.


SD Desk

SD Desk aims to create, guide, and motivate young, and energetic people for entrepreneurship worldwide.