Investment refers to buying financial assets with the expectation of earning profit in the future. The underlying asset is purchased not for immediate consumption, but to create wealth with the passage of time.
An investor purchases an asset with the idea of earning income from the investment. The asset can be anything such as real estate, financial securities, commodities, and others. Main goal of the investor is to earn a positive return on the investment that result in increase in overall wealth.
The land one produces to build a factory and the payment ones make to complete a college degree are examples of investment in the economic context. Investment in the financial context includes purchase of stocks, precious metal, and real estate that have the potential to provide positive return on investment.
Investing and speculating are the same in essence but have different aim. Investment involves buying an asset to grow one’s wealth gradually. Speculating on the other hand refers to buying highly risky assets to amass quick wealth. The risk of loss in speculation is greater as compared to investment. That said the potential of earning higher returns is also greater in speculation compared to investment.
Investment can be long term, medium term and short term. Long term investment is made for more than 5 years; medium term investment is from 1 to 5 years; while short term investment is made for less than a year.
Investors can invest to buy asset either in the present or in the future. The former is bought at spot prices while the latter at future prices. An investor buys a good at future prices with the intention of gaining from an increase in value after a certain time has elapsed.
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