The concept of “investing” means the purchase of assets. The term asset means something which is likely to generate an increase in value. That can either mean an incoming cash flow or an increase in the intrinsic value of the asset itself. Work is different from investment in that the worker receives cash in exchange for their effort. Investment is performed at all scales from that of the individual all the way up to a whole country.
Investment risk not only includes the risk that no increase in value will be generated by the asset, but also the risk that the asset itself will decrease in value to some extent (or even become worth nothing at all). Risk and return will vary over time.
Every asset will have some degree of risk associated with it as well as a likelihood of generating an increase in value. Assets are such things as property, commodities, land, bonds, financial derivatives such as futures or options, stocks, and businesses. The fundamental decisions in investing are about the estimation of likely risk and reward for different assets.
Investment is a fundamental part of any business. Every business owns assets of some kind, whether they are physical or not. Those assets which are owned or controlled by the business are used to generate an increase in value either as cash flow or an increase in asset value.
Real estate is a common type of asset used as an investment, although many people have considerable misunderstandings about how this works. Residential real estate is the most common category of real estate investment and is considered less risky than commercial real estate.
Other assets used for investment can include such things as stocks, shares, jewelry, bonds, art, commodities, metals (such as gold or silver), and many other things. As with any type of investment, there will always be risks associated with each of these asset categories as well as the potential gains in value from owning them for a particular period of time.
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