Investment or investing^[1] is a term with several closely-related meanings in business management Management in all business and human organization activity is simply the act of getting people together to accomplish desired goals and objectives. Management comprises planning, organizing, staffing, leading or directing, and controlling an organization or effort for the purpose of accomplishing a goal. Resourcing encompasses the deployment and, finance Finance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interrelated. It also deals with how money is spent and budgeted and economics Economics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". Current economic, related to saving Saving is the conservation of money. For instance, putting money aside in a bank or pension plan. Saving also includes reducing expedintures, such as recurring costs. In terms of personal finance, saving specifies low-risk preservation of money, as in a deposit account, versus investment, wherein risk is higher or deferring consumption Consumption is a common concept in economics, and gives rise to derived concepts such as consumer debt. Generally consumption is defined by opposition to production. But the precise definition can vary because different schools of economists define production quite differently. According to some economists, only the final purchase of goods and. Investing is the active redirection of resources: from being consumed today, to creating benefits in the future; the use of assets to earn income or profit.^[2]

An investment is a choice by an individual or an organisation such as a pension fund, after at least some careful analysis or thought, to place or lend money in a vehicle (e.g. property Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings, specifically property that is fixed in location. Real estate law is the body of regulations and legal codes which pertain to such matters under a particular jurisdiction. Real estate is often considered synonymous with real, stock In business and finance, a share of stock means a share of ownership in a corporation (company). In the plural, stocks is often used as a synonym for shares especially in the United States, but it is less commonly used that way outside of North America securities A security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities ; equity securities, e.g., common stocks; and derivative (finance) contracts, such as forwards, futures, options and swaps. The company or other entity issuing the security is called the issuer. A country's, bonds In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals) that has sufficiently low risk and provides the possibility of generating returns over a period of time.^[3] Placing or lending money in a vehicle that risks the loss of the principal sum or that has not been thoroughly analyzed is, by definition speculation In finance, speculation is a financial action that does not promise safety of the initial investment along with the return on the principal sum. Speculation typically involves the lending of money or the purchase of assets, equity or debt but in a manner that has not been given thorough analysis or is deemed to have low margin of safety or a, not investment.^[4]

In the case of investment, rather than store the good produced or its money equivalent, the investor chooses to use that good either to create a durable consumer or producer good, or to lend the original saved good to another in exchange for either interest or a share of the profits.

In the first case, the individual creates durable consumer goods, hoping the services from the good will make his life better. In the second, the individual becomes an entrepreneur using the resource to produce goods and services for others in the hope of a profitable sale. The third case describes a lender, and the fourth describes an investor in a share of the business.

In each case, the consumer obtains a durable asset or investment, and accounts for that asset by recording an equivalent liability. As time passes, and both prices and interest rates change, the value of the asset and liability also change.

An asset In business and accounting, assets are economic resources owned by business or company. Any property or object of value that one possesses, usually considered as applicable to the payment of one's debts is considered an asset. Simplistically stated, assets are things of value that can be readily converted into cash. The balance sheet of a firm is usually purchased, or equivalently a deposit is made in a bank, in hopes of getting a future return In finance, rate of return , also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/ or interest from it. 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.

Green Investments

Many investors do not view global warming Global warming is the increase in the average temperature of the Earth's near-surface air and oceans since the mid-20th century and its projected continuation. Global surface temperature increased 0.74 ± 0.18 °C during the last century.[A] The Intergovernmental Panel on Climate Change (IPCC) concludes that increasing greenhouse gas just as a scientific theory, but rather an investment opportunity. Climate change is increasingly becoming a factor in investments made, and one way to meet that factor is to invest in a company geared towards environmental conservation.

The risk involved in green investing is the fact that the ideas and projects are all relatively fresh. Due to increased awareness in global warming, government mandates, and other environment-related issues, socially responsible projects are quickly gaining popularity and success.

The Washington-based Worldwatch Institute stated, "...climate-proofing the global economy will involve large-scale investments in new technologies, equipment, buildings and infrastructure, which will provide a major stimulus for much-needed new employment and an opportunity for retaining and transforming new jobs ^[5]. The opportunities in green investing is vast for its proven sustainability.

Business management

The investment decision (also known as capital budgeting Capital budgeting is the planning process used to determine whether a firm's long term investments such as new machinery, replacement machinery, new plants, new products, and research development projects are worth pursuing. It is budget for major capital, or investment, expenditures) is one of the fundamental decisions of business management: Managers determine the investment value of the assets that a business enterprise has within its control or possession. These assets may be physical (such as buildings or machinery), intangible (such as patents A patent is a set of exclusive rights granted by a state to an inventor or his assignee for a limited period of time in exchange for a disclosure of an invention, software, goodwill), or financial (see below). Assets are used to produce streams of revenue that often are associated with particular costs or outflows. All together, the manager must determine whether the net present value Net present value or net present worth (NPW) is defined as the total present value (PV) of a time series of cash flows. It is a standard method for using the time value of money to appraise long-term projects. Used for capital budgeting, and widely throughout economics, it measures the excess or shortfall of cash flows, in present value terms, of the investment to the enterprise is positive using the marginal cost of capital The cost of capital is an expected return that the provider of capital plans to earn on their investment that is associated with the particular area of business.

In terms of financial assets, these are often marketable securities A security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities ; equity securities, e.g., common stocks; and derivative (finance) contracts, such as forwards, futures, options and swaps. The company or other entity issuing the security is called the issuer. A country's such as a company stock (an equity investment) or bonds (a debt investment). At times the goal of the investment is for producing future cash flows, while at others it may be for purposes of gaining access to more assets by establishing control or influence over the operation of a second company (the investee).

Economics

In economics Economics is the social science that studies the production, distribution, and consumption of goods and services. The term economics comes from the Ancient Greek οἰκονομία from οἶκος (oikos, "house") + νόμος (nomos, "custom" or "law"), hence "rules of the house(hold)". Current economic, investment is the production per unit time of goods In economics, a good is any object or service that increases utility, directly or indirectly. It should not to be confused with the adjective "good", as used in a moral or ethical sense. A good that cannot be used by consumers directly, such as an "office building" or "capital equipment", can also be referred to as a which are not consumed but are to be used for future production. Examples include tangibles (such as building a railroad Rail transport is the conveyance of passengers and goods by means of wheeled vehicles running along railways in British and Australian English . Railway transport is part of the logistics chain, which facilitates international trade and economic growth. Rail transport is capable of high capacity and is energy efficient, but lacks flexibility and or factory A factory or manufacturing plant is an industrial building where workers manufacture goods or supervise machines processing one product into another. Most modern factories have large warehouses or warehouse-like facilities that contain heavy equipment used for assembly line production. Typically, factories gather and concentrate resources: workers,) and intangibles (such as a year of schooling or on-the-job training). In measures of national income and output A variety of measures of national income and output are used in economics to estimate total economic activity in a country or region, including gross domestic product , gross national product (GNP), and net national income (NNI), gross investment (represented by the variable A variable is a symbol that stands for a value that may vary; the term usually occurs in opposition to constant, which is a symbol for a non-varying value, i.e. completely fixed or fixed in the context of use. The concepts of constants and variables are fundamental to all modern mathematics, science, engineering, and computer programming I) is also a component of Gross domestic product The gross domestic product or gross domestic income (GDI), a basic measure of an economy's economic performance, is the market value of all final goods and services made within the borders of a nation in a year. GDP can be defined in three ways, all of which are conceptually identical. First, it is equal to the total expenditures for all final (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.

Both non-residential investment (such as factories) and residential investment (new houses) combine to make up I. Net investment deducts depreciation Depreciation is a term used in accounting, economics and finance to spread the cost of an asset over the span of several years from gross investment. 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 factors of production used to create goods or services that are not themselves significantly consumed in the production process. Capital goods may be acquired with money or financial capital. In finance and accounting, capital generally refers to financial wealth, especially that. The time dimension of investment makes it a flow Economics, business, accounting, and related fields often distinguish between quantities which are stocks and those which are flows. A stock variable is measured at one specific time, and represents a quantity existing at that point in time, which may have been accumulated in the past. A flow variable is measured over an interval of time. By contrast, capital is a stock, that is, an accumulation measurable at a point in time (say December 31).

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 Opportunity cost or economic opportunity loss is the value of the next best alternative forgone as the result of making a decision. Opportunity cost analysis is an important part of a company's decision-making processes but is not treated as an actual cost in any financial statement. The next best thing that a person can engage in is referred to of investing those funds rather than lending out that amount of money for interest.

Finance

In finance Finance is the science of funds management. The general areas of finance are business finance, personal finance, and public finance. Finance includes saving money and often includes lending money. The field of finance deals with the concepts of time, money and risk and how they are interrelated. It also deals with how money is spent and budgeted, investment is the commitment of funds by buying securities A security is a fungible, negotiable instrument representing financial value. Securities are broadly categorized into debt securities ; equity securities, e.g., common stocks; and derivative (finance) contracts, such as forwards, futures, options and swaps. The company or other entity issuing the security is called the issuer. A country's or other monetary or paper (financial) assets in the money markets In finance, the money market is the global financial market for short-term borrowing and lending. It provides short-term liquidity funding for the global financial system. The money market is where short-term obligations such as Treasury bills, commercial paper and bankers' acceptances are bought and sold or capital markets The capital market is the market for securities, where companies and governments can raise longterm funds. It is a market in which money is lent for periods longer than a year. The capital market includes the stock market and the bond market. Financial regulators, such as the U.S. Securities and Exchange Commission , oversee the capital markets in, or in fairly liquid 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 or selling without causing a significant movement in the price and with minimum loss of value. Money, or cash on hand, is the most liquid asset. An act of exchange of a less liquid asset with a more liquid real assets, such as gold Gold is a chemical element with the symbol Au (Latin: aurum) and an atomic number of 79. It has been a highly sought-after precious metal in jewelry, in sculpture, and for ornamentation since the beginning of recorded history. The metal occurs as nuggets or grains in rocks, in veins and in alluvial deposits. Gold is dense, soft, shiny and the most, real estate Real estate is a legal term that encompasses land along with anything permanently affixed to the land, such as buildings, specifically property that is fixed in location. Real estate law is the body of regulations and legal codes which pertain to such matters under a particular jurisdiction. Real estate is often considered synonymous with real, or collectibles. Valuation In finance, valuation is the process of estimating the potential market value of a financial asset or liability. Valuations can be done on assets or on liabilities (e.g., Bonds issued by a company). Valuations are required in many contexts including investment analysis, capital budgeting, merger and acquisition transactions, financial reporting, is the method for assessing whether a potential investment is worth its price. Returns on investments In finance, rate of return , also known as return on investment (ROI), rate of profit or sometimes just return, is the ratio of money gained or lost (whether realized or unrealized) on an investment relative to the amount of money invested. The amount of money gained or lost may be referred to as interest, profit/loss, gain/loss, or net income/ will follow the risk-return spectrum 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.[citation needed] The more return sought, the more risk that must be undertaken.

Types of financial investments include shares, other equity investment 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 dividends and capital gain as the value of the stock rises. It also sometimes refers to the acquisition of equity participation in a private (unlisted) company or a startup (a company being, and bonds In finance, a bond is a debt security, in which the authorized issuer owes the holders a debt and, depending on the terms of the bond, is obliged to pay interest and/or to repay the principal at a later date, termed maturity. A bond is a formal contract to repay borrowed money with interest at fixed intervals (including bonds denominated in foreign currencies In monetary economics Currency can refer either to a particular currency, for example British Pounds or United States Dollars, or, to the coins and banknotes of a particular currency, which comprise the monetary base of a nation’s money supply. The other part of a nation’s money supply consists of money deposited in banks , ownership of which). 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 Derivatives are financial contracts, or financial instruments, whose prices are derived from the price of something else . The underlying price on which a derivative is based can be that of an asset (e.g., commodities, equities (stock), residential mortgages, commercial real estate, loans, bonds), an index (e.g., interest rates, exchange rates, or derivative Derivatives are financial contracts, or financial instruments, whose prices are derived from the price of something else . The underlying price on which a derivative is based can be that of an asset (e.g., commodities, equities (stock), residential mortgages, commercial real estate, loans, bonds), an index (e.g., interest rates, exchange rates, securities do not necessarily have future positive expected cash flows, and so are not considered assets, or strictly speaking, securities or investments. 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 An intermediary is a third party that offers intermediation services between two trading parties. The intermediary acts as a conduit for goods or services offered by a supplier to a consumer. Typically the intermediary offer some added value to the transaction that may not be possible by direct trading, such as banks A bank is a financial institution licensed by a government. Its primary activities include borrowing and lending money. Many other financial activities were allowed over time. For example banks are important players in financial markets and offer financial services such as investment funds. In some countries such as Germany, banks have, mutual funds A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests it in stocks, bonds, short-term money market instruments, and/or other securities. The mutual fund will have a fund manager that trades the pooled money on a regular basis. The net proceeds or losses are then typically, pension funds Pension funds are important shareholders of listed and private companies. They are especially important to the stock market where large institutional investors like the Ontario Teachers' Pension Plan dominate. The largest 300 pension funds collectively hold about $6 trillion in assets. In January 2008, The Economist reported that Morgan Stanley, insurance Insurance, in law and economics, is a form of risk management primarily used to hedge against the risk of a contingent loss. Insurance is defined as the equitable transfer of the risk of a loss, from one entity to another, in exchange for a premium, and can be thought of as a guaranteed small loss to prevent a large, possibly devastating loss. An companies, collective investment schemes A collective investment scheme is a way of investing money with others to participate in a wider range of investments than feasible for most individual investors, and to share the costs and benefits of doing so, and investment clubs. 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.

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. Saving within personal finance refers to money put aside, normally on a regular basis. 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.

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. 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 money is used to purchase property for the purpose of holding or leasing for income and there is an element of capital risk.

Residential real estate

The most common form of real estate investment as it includes property purchased as a primary residence. 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. 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 consists of multifamily apartments, office buildings, retail space, hotels and motels, warehouses, and other commercial properties. Due to the higher risk of commercial real estate, loan-to-value ratios allowed by banks and other lenders are lower and often fall in the range of 50-70%.^{[citation needed]}

See also

• Appreciation
• Capital (economics)
• Capital accumulation
• Capital strike
• Diversifying investment
• Divestment
• Dollar roll
• Financial economics
• Foreign direct investment
• Gold as an investment
• Investment-specific technological progress
• Investor profile
• Investor relations
• Reforestation Green Investments
• List of accounting topics
• List of countries by gross fixed investment as percentage of GDP
• List of economics topics
• List of economists
• List of finance topics
• List of financial services companies (by country)
• List of management topics
• List of marketing topics
• Market trends
• Megaproject
• Optimism bias
• Over-investing
• Philatelic investment
• Psychology of previous investment
• Rate of return (ROR, a.k.a. ROI)
• Reference class forecasting
• Regulation Fair Disclosure
• Right-financing
• Risk
• Saving
• Silver as an investment
• Socially responsible investing
• Speculation
• Stock trader
• Strategic misrepresentation
• Value investing

Notes

1. ^ British- and American English, respectively.^{[citation needed]}
2. ^ Sullivan, arthur; Steven M. Sheffrin (2003). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 271. ISBN 0-13-063085-3. http://www.pearsonschool.com/index.cfm?locator=PSZ3R9&PMDbSiteId=2781&PMDbSolutionId=6724&PMDbCategoryId=&PMDbProgramId=12881&level=4.
3. ^ Graham, Benjamin, and David Dodd (1951). Security Analysis. McGraw-Hill Book Company. ISBN 0071448209
4. ^ Graham and Dodd (1951). Security Analysis. McGraw-Hill Book Company. ISBN 0071448209
5. ^ Worldwatch Institute [1]

External links

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