Concept of Investment
An Introduction to Investment: What do you know about investment?
Before starting with the deep discussion on investing, we must know in a broad sense about investment. Investing in various types of assets is an interesting activity that attracts people from all walks of life irrespective of their occupation, economicstatus, education and family background. When a person has more money than he requires for current consumption, he would be coined as a potential investor. The investor who is having extra cash could invest it in securities or in any other assets like or gold or real estate or could simply deposit it in his bank account. The companies that have extra income may like to invest their money in the extension of the existing firm or undertake new venture. All of these activities in a broader sense mean investment. Now, lets define investment.
How do you Define Investment?
We can define investment as the process of, “sacrificing something now for the prospect of gaining something later”. So, the definition implies that we have four dimensions to an investment- time, today’s sacrifice and prospective gain.
How is Investment Different from Speculation?
We know that investment means sacrificing or committing some money today in anticipation of a financial return later. The investor indulges in a bit of speculation involved in all investment decisions. It does not follow through that all investments are all speculative by nature. Genuine investments are carefully thought out decisions. They involve only calculated risks.The expected return is consistent with the underlying risk of the investment. A genuine investor is risk averse and usually has a long-term prospective in mind. The government officer’s investment in the units of UTI , the college professor’s Reliance stockholding , the lady clerk’s Post Office Savings Deposit, all may be regarded as genuine investments. Each person seems to have made carefully thought out decision and each has only calculated risk. Speculative investments on the other hand are not carefully thought out decisions. They are based on rumors, hot tips, inside dopes and often simply on hunches. The risk assumed is disproportionate to the return expected from speculation. The intention is to profit from short-term market fluctuations. In other words, a speculator is relatively less risk-averse and has a short-term perspective for investment.