Let us expand our knowledge in different financial terms, today we will talk about the definition and meaning of investment in different areas such as business. Here at InvestmentTotal, there are financial terms collections that are well explained. We have to refer to the English dictionary and financial experts to know exactly the meaning and definition of investments.
Investment Definition in Dictionary
“The act of investing, esp. of money, something invested, esp. money, something in which money is invested”.
Reference: The New Lexicon Webster’s Encyclopedic Dictionary of the English Language, Deluxe Edition, Lexicon Publications, page 508
Simply means you are purchasing something or acquiring something using your money and expect to gain profits. A profit means the excess to the total amount of invested capital. Example, if you buy an iPhone worth $500 and sell it $550 after you have bought it, it means you make a financial gain worth $50.
Investment Definition in Accounting Books
“From the investor’s point of view, most investments in corporate securities fall into one of two broad categories: (1) investments in marketable securities, and (2) investments for purposes of influence or control.”
Reference: Accounting: The Basis for Business Decisions by Robert F. Meigs and Walter B. Meigs, McGraw-Hill Publishing Company, 1990, page 637
Investment Definition According to Financial Experts
Let us also ask the financial experts.
According to T. Harv Eker, author of Secrets of the Millionaire Mind
“Generally, the better you are at investing, the faster your money will grow and generate a greater net worth. Rich people take the time and energy to learn about investing and investments. They pride themselves on being excellent investors or at least hiring excellent investors to invest for them. Poor people think investing is only for rich people, so they never learn about it and stay broke.”
It simply means, investments will help you increase your net worth overtime. In investing, you are buying an asset not a liability. Example, if you buy a car and you are not making money with that car, it is a liability. If you buy a real estate property and you make money with it through rentals, it means that real estate property is an asset. In short, assets are investments.
Money for Investment Definition
Most of all you should know that in investing, “money” isn’t the only thing you invested, aside from money, you also invested “time”, “effort”, and “education”. But in financial world, when we talk about paper assets, “money” is the main thing to be invested.
Example: If you want to invest in the stock market, you should use money. It is impossible to buy stock shares if you will not use money, because the word “price” is used, example, stock price, price of shares, market value or market price.
Another example, if you want to invest in real estate, you still use “money”, it is impossible to invest in real estate if you will not use “money”, how could you buy a properties without money? Again, the word “price” was used such as price of house, price of lot only, price of condominium in Manhattan, price of 120,000 square meters farm.
If you want to invest in business, the “money” will also be use. Example, you want to build your own business, you will use money for registering your business name and other business processing and legal matters. You buy materials for your products, or buy someone’s products, what would you use? Money, simply means you use money as your investment capital.
Income Investments Definition
The income in your investments can easily be computed, just sum up the total expenses or your total investments and your total gross income, then, subtract your total investment capital to your gross income.
Example: Total investment capital is $150,000 and you make a gross income of $350,000. It means you have an investment income amounting to $200,000. Income from your investment can also consider as the “net income” in your business.
Definition of Long Term Investments
The long-term investments means long years to stay invested, long years before gaining profits, long years before you realize the rate of return on your investments, example 10 years or more. There are different ways to invest for long-term, if you invest in the stock market with one time investment capital (lump sum) a total of $50,000 and wait for 10 years, and you are expecting that this investment capital in the stock market will be doubled or tripled, it means you are investing for long term.
- Short Term: month to a year
- Medium Term: 1 year to 5 years
- Long Term: 10 years or more
Now you learned the definition of investments, try to have time to read other financial terms such as meaning of mutual funds, meaning of insurance, meaning of stock split, etc.
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Money Quote and Saying for the Day
The rich invest in time, the poor invest in money. – Warren Buffett