Investing

Investing                      

Investment has different meanings in finance and economics.
In economics, investment is the accumulation of newly produced physical entities, such as factories, machinery, houses, and goods inventories.

In finance, investment is putting money into an asset with the expectation of capital appreciation, dividends, and/or interest earnings. This may or may not be backed by research and analysis. Most or all forms of investment involve some form of risk, such as investment in equities, property, and even fixed interest securities which are subject, among other things, to inflation risk. It is indispensable for project investors to identify and manage the risks related to the investment.

In finance      

In finance, investment is the purchase of an asset or item with the hope that it will generate income or appreciate in the future and be sold at the higher price. It generally does not include deposits with a bank or similar institution. The term investment is usually used when referring to a long-term outlook. This is the opposite of trading or speculation, which are short-term practices involving a much higher degree of risk. Financial assets take many forms and can range from the ultra safe low return government bonds to much higher risk higher reward international stocks. A good investment strategy will diversify the portfolio according to the specified needs. The most famous and successful investor of all time isWarren Buffett. In March 2013 Forbes magazine had Warren Buffett ranked as number 2 in their Forbes 400 list. Buffett has advised in numerous articles and interviews that a good investment strategy is long term and choosing the right assets to invest in requires due diligence. Edward O. Thorp was a very successful hedge fund manager in the 1970s and 1980s that spoke of a similar approach. Another thing they both have in common is a similar approach to managing investment money. No matter how successful the fundamental pick is, without a proper money management strategy, full potential of the asset can’t be reached. Both investors have been shown to use principles from the Kelly criterion for money management.Numerous interactive calculators which use the kelly criterion can be found online.

In contrast, dollar (or pound etc.) cost averaging and market timing are phrases often used in marketing of collective investments and can be said to be associated with speculation.

Investments are often made indirectly through intermediaries, such as pension funds, banks, brokers, and insurance companies. These institutions may pool money received from a large number of individuals into funds such as investment trusts, unit trusts, SICAVs etc. to make large scale investments. Each individual investor then has an indirect or direct claim on the assets purchased, subject to charges levied by the intermediary, which may be large and varied. It generally, does not include deposits with a bank or similar institution. Investment usually involves diversification of assets in order to avoid unnecessary and unproductive risk.

Real estate investing  

Real estate investing involves the purchase, ownership, management, rental and/or sale of real estate for profit. Improvement of realty property as part of a real estate investmentstrategy is generally considered to be a sub-specialty of real estate investing called real estate development. Real estate is an asset form with limited liquidity relative to other investments, it is also capital intensive (although capital may be gained through mortgage leverage) and is highly cash flow dependent. If these factors are not well understood and managed by the investor, real estate becomes a risky investment. The primary cause of investment failure for real estate is that the investor goes into negative cash flow for a period of time that is not sustainable, often forcing them to resell the property at a loss or go into insolvency. A similar practice known as flipping is another reason for failure as the nature of the investment is often associated with short term profit with less effort.