The word investment or investing has many meanings which
are similar to one another in the fields of finance and economics.
The meanings are related to the act of reserving something
for future use. Commonly, goods are bought or kept in
a bank to get a profit or gain in future. In literature
the meaning of word "investment” is given as "action
of storing something in a certain place ".
Types of Investment
There is a major difference of the term investment in the fields of economics and finance. Economists refer to real investments like a machine or a house. But financial economists usually mean a financial asset such as the money deposited in a bank or put in a market which can be used to buy a real asset.
Economics
The meaning of the word economics is to buy some goods
(i.e., act of producing) which need money to be paid.
Such goods are not used but they are reserved for
future production. For example, the construction
of a rail road or a factory, clearing the earth or getting
admission in a college. If we use the original meaning,
investment is also a part of GDP as shown in the formula
GDP = C + I + G + NX. Investment here is divided
into two parts which are: Non-residential investment (for
example, factories, machinery, etc) and Residential investment
(such as new houses). Investment is usually understood
as something which is affected by money and interest rates
shown by the relation I = (Y, i). An increase in
money will increase investment but a higher interest rate
might decrease investment as it becomes costlier to take
loans. Even in the case a company uses its own money
in an investment, the interest rate comes as a chance
to invest that money instead of giving loans to gain interests.
Finance
In the field of finance, the word investment means buying
securities or other money related good in the market.
It also refers to putting money in changing markets
e.g. investment in gold, real estate or collectibles.
Valuation is a method used to check if a future
investment can create a gain or profit.
Types of investment include shares or other stock related
investment. It also includes the bonds (including
those bonds which are distributed in the currencies of
other countries). It is hoped that these investment
goods will generate money or bring profits in future.
However, their value may increase or decrease depending
upon the profits or loses the money of the investor is
able to bring.
It is not necessary that trades involving conditional
claims or securities which are part of other investments
obtain the expected capital. Hence they are not
considered as assets. In their original meaning,
they are not securities or investments. However,
the money generated by them has close relation to (or
is part of) other specific securities. So they are often
studied or treated as investments.
Investments are often made indirectly e.g. via banks,
shared funds, pension money, insurance companies, collective
investment schemes or even investment clubs. These
middle-mediums differ from one another in legal and procedural
details; they generally make investment using money from
many individuals each having a claim on them.
Personal Finance
In personal finance, any money used to buy shares, given
to any collective investment scheme or has been used to
buy any asset where there is a risk of losing money is thought
as investment. The word “saving” in personal
finance means the deposited money reserved regularly. The
risk in investment may result in the loss of money while
in saving(s) the only loss is the decrease in value due
to inflation.
In many cases, the term saving and investment replace one
another which confuses the definition. For example, many
deposit accounts are considered as investment accounts by
banks for the purpose of marketing. It all depends on where
your money is. If you have invested it in cash then it is
savings, but if is a type of asset whose value is likely
to change in future then it is investment.
