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What is an Investment? A Comprehensive Guide

Table of Contents

An investment involves committing resources (usually money, time, or effort) in the present with the expectation of receiving greater value or returns in the future. This can happen in two main ways:

The Fundamental Principle

The key principle behind investing is sacrificing immediate access to resources in exchange for potential future gains. While investments often involve financial assets like stocks and bonds, they can also include education, business ventures, collectibles, or any asset acquired primarily for future financial benefit rather than current consumption.

Productive Investments

Productive investments actively work to create new value and generate returns through:

Non-Productive Investments

Non-productive investments rely solely on price appreciation from someone willing to pay more later:

Understanding Investment Risk

All investments carry some level of risk. The key types of investment risks include:

Investment Strategies

Key Principles for Successful Investing:

  • Diversify your investments across different asset classes
  • Invest regularly and consistently over time
  • Keep investment costs low
  • Reinvest dividends and interest for compound growth
  • Maintain a long-term perspective
Disclaimer: This article is for educational purposes only and should not be considered financial advice. Always consult with a qualified financial advisor before making investment decisions.