We often hear the word investment. When we are at a bank, making a transaction, we hear it. We hear it when our dad talks about his future plans. We hear it when our friends advise us what things to buy and what to avoid. Hey, we even hear it from our loved ones saying that they have invested so much emotion in the relationship. What is investment really?
The term “investment” comes from the Latin word “vestis,” which means garment. It refers to the act of putting something, like money, into other people's pockets in the hopes of getting something in return in the future. The term is used differently in the fields of business management, finance and economics.
Business Management
Investment is a fundamental decision in business management. Business managers have to determine the assets they the business obtain. There are many types of assets. They may be physical like buildings and equipment. They can also be intangible assets such as software and patents. The manager must assess if the investment's net present value to the enterprise is positive. A business can also invest with the goal of making profit. These investments are commonly known as passive investments or marketable securities. When the enterprise invests with the goal of influencing or controlling the operation of the investee, the assets are called long-term, intercorporate and strategic investments.
Economics
In economics, investment is defined as the production of goods that are not consumed but will be used for future production, per unit time. These investments can be tangible or physical, such as building a factory or a railroad, or intangible, like a year of internship or on-the-job training.
Investment is often designed as a function of interest rates and income. An increase of income can lead to higher investments. On the other hand, a higher interest rate can discourage investment because borrowing money becomes more costly. Even when a company chooses to use its own funds, an opportunity cost of investing these funds instead of loaning them out for interest is represented by the interest rate.
Finance
In finance, investment refers to the purchase of securities or other monetary or financial assets in the capital markets. Investments come in various types, including shares, notes and bonds. These assets are expected to provide income in the future. The value of these assets may decrease or increase, which gives the investor capital gains and losses. Often, investments are made indirectly through banks, pension funds, mutual funds, investment clubs and insurance companies.
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