Investment

Financial Dictionary -> Investing -> Investment

Investment is when somebody uses (spends) money that they already have in hope of making more money in the future with the "investment." This can come in the form of many things, including starting up a business, buying shares or stocks in a company, buying a house and selling it when its value is higher than when it was purchased, buying a product and selling it on for a higher price, buying raw materials and making a product. Even putting money in to a savings account is an investment as your money is invested by the bank and you get interest back, although this is not explicitly done as your money is always available, or will be available in an agreed amount of time. Most people at one point in their life will invest, even if they don't know it.

All investments carry some amount of risk, although opening a savings account is 99.999% safe. It is often important to calculate what your return might be on an investment to see if it is worth your money and to see how risky it is. The most common method of doing this is with the Return On Investment or ROI formula on an annual basis, although this is often unreliable due to the guessing of several figures.

When investing it is advisable to start with small low risk investments, such as Certificates of Investment (basically a savings account) or mutual funds. Returns on these lower risk investments are generally a lot lower than others but it introduces you to how investment works and can help build up funds for more risky and complicated investments.

Many people with little knowledge in investment choose to hire specialists to do the hard work for you, picking safe investments with their expert opinion. These are known as brokers. They will charge a fee or percentage.