What is an Investment?

An investment is a payment made to acquire the securities of other entities, with the objective of earning a return. Examples are bonds, common stock, and preferred stock. It may also involve the purchase of other assets, such as a property from which rental payments can be generated. The key difference between an investment and other assets is that investments are intended to generate a return, while other assets are intended to be consumed over time.

There are two ways to earn a return on an investment, which are from ongoing payments issued by the investment or through the appreciation in value of the asset. Higher-risk investments tend to earn a higher return for the investor, though these investments may also result in the loss of some portion or all of the invested amount.

The concept can also mean the acquisition of fixed assets for internal use, also with the objective of earning a return. This type of investment is much more likely to generate returns through positive cash flows, rather than through appreciation, since the assets will eventually wear out.