The concept of “investment” means the purchase of assets. The word “asset” means something which is likely to generate an increase in value and that can either mean cash flow or an increase in the intrinsic value of the asset itself. Work is different from investment in that the worker receives cash in exchange for effort. Investment is performed at all scales from that of the individual right up to a whole country.
Every asset will have some degree of risk associated with it as well as it’s likelihood of generating an increase in value. Assets are such things as property, land, bonds, financial derivatives such as futures or options, commodities, stocks, and businesses. The fundamental decisions in investing are about the estimation of likely risk and reward for different assets.
Investment risk not only includes the risk that no increase in value will be generated by the asset, but additionally the risk that the asset itself will decrease in value to some extent (or even become totally worthless). Risk and return will also vary over time.
Investment is a fundamental part of any business. Every business owns assets of some kind, whether they be physical or not. Those assets which are owned or controlled by the business are in turn used to generate an increase in value either as cash flow or an increase in asset value.
Real estate is a common type of investment asset although there are considerable misunderstandings about the concept or real estate investment, and many actions that someone might consider to be real estate investment are really real estate speculation. Residential real estate is the most common area of real estate investment and is generally considered to have less risk than commercial real estate.
Other types of assets people invest in can include such things as stocks, shares, commodities, jewelry, bonds, art, metals (such as gold or silver), and many others. As with any form of investment, each of these assets has a degree of risk as well as a likelihood of generating an increase in value over time.
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