What is an Investment?

Key Takeaways

• An investment is an asset bought for generating income or profits over time.

• Investments are made upon the desire for a greater payoff, but sometimes an investment may carry risks of missing expectations.

• Learning is a kind of investment, which could be the most common and must thing for new investors.

Understanding an investment

An investment is like planting a seed. You cultivate it with your time, patience and expect it to grow into a tree with fruit. When you make an investment, you exchange certain resources (like money, time and land) for assets (like stocks, opportunities, real estate) with the aim of generating returns or increasing value in the future. For example, if you decide to buy shares of Apple, you are expecting that the asset value will grow over time.

In most cases, an investment involves the outlay of money, such as stocks, options, funds and bonds. However, learning that mainly takes up time and attention is also a kind of investment for most people (in hopes of bringing more income), which could be the most common and must thing for new investors.

Investments are made upon the desire for a greater payoff, but sometimes an investment may carry risks of missing your expectation, taking up your resources or shrinking your assets. Therefore, doing due diligence before making investment decisions is necessary to mitigate risks as much as you can.

Example

Back to $Apple (AAPL.US)$'s investment story. Apple has been the long-term leader in smartphone markets in terms of market shares. With the launch of service offerings, analysts rated that Apple's closed-loop ecology is to be further consolidated, which reminds you of Warren Buffet's moat principle.

Assuming several years ago, you have bought 10 shares of Apple at $50 per share. In 2021, Apple's stock price has risen to $140 per share. Your 10 shares of Apple are now worth $1,400, which means the investment appreciates $ 900 in value regardless of taxes, trading fees, and other costs. It's worth mentioning positive returns cannot be guaranteed in all investments, which is the main feature considered while differentiating investments from savings. If you had bought AMC stocks on Jun. 2, 2021, at $78, each share would have been worth only $35.69 as of Aug. 16, 2021.