How To Write Investment Term Papers

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 ".

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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.

  1. 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.

  2. 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.

  3. 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.

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