What is investment?

Definition

Investment means purchasing assets like stocks and real estate, with the aim of earning profits or income in the future. It's like buying something now that you hope will increase in value and make you money later on.

Understanding investments

Investing is when you trade resources, such as money or credit, for assets, like stocks or real estate, in the hopes of gaining future benefits. This can include appreciation in value or receiving dividends, as well as investing in education to start a fulfilling career. Investments aren't just limited to money, though; you can also invest time and labor, like a business might do. However, there is always a risk involved in investing, as the asset's value could decrease or the expected benefits may not be realized. Therefore, while investing offers potential rewards, it's important to remember that there's also risk involved.

Example

Imagine a few years ago during the holiday season, you noticed your friends and family buying gifts online. You believed e-commerce was the future and decided to invest in Amazon by purchasing 10 shares at $300 per share on Jan. 6, 2015. Fast forward to Feb. 11, 2020, and Amazon's stock price had skyrocketed to $2,150 per share. You decide to sell your shares, which are now worth $21,150, netting you a profit of $18,500 before taxes and fees. However, it's important to remember that not all investments turn out to be profitable. For example, if you had invested in J.C. Penny stocks on the same day at $7.90 per share, each share would only be worth about 73 cents on Feb. 11, 2020.

Gist

Planting a seed in the right conditions can result in a lemon tree, strawberry vine, or a beautiful flower that gives back over time. Similarly, investing can grow into something more valuable than the initial investment, but it also comes with the risk of losing money, like a plant that may wither.