Investment or investing
is a term with several closely-related meanings in finance and economics.
It refers to the accumulation of some kind of asset in hopes of getting
a future return from it. Technically, the word means the "action
of putting something in to somewhere else" (perhaps originally
related to a person's garment or 'vestment').
Types of investment
In theoretical economics,
investment means the purchase (and thus the production) of capital
goods - goods which are not consumed but instead used in future production.
Examples include building a railroad, or a factory, clearing land,
or putting oneself through college. In a stricter sense, investment
is also a component of GDP given in the formula GDP
= C + I + G + NX. The investment function in that aspect is
divided into non-residential investment (such as factories, machinery
etc) and residental investment (new houses). Investment is a function
of income and interest rates, given by the relation I = (Y, i). An
increase in income will encourage higher investment, whereas a higher
interest rate will discourage investment as it becomes costlier to
borrow money. Even if a firm chooses to use its own funds in an investment,
the interest rate represents an opportunity cost of investing those
funds rather than loaning them out for interest.
investment means buying securities or other monetary or paper assets.
Valuation is the method for assessing whether a potential investment
is worth its price. Types of investments include equity investment
or real estate investment, foreign currencies or bonds or postage
stamps. These investments may then provide future cash flows and may
increase or decrease in value. In the stock markets it is performed
by the stock investors.
schemes encourage investors to purchase securities by marketing the
merits of investment.
Investment clubs are groups of individuals who meet on a regular basis
for the purpose of investing money, most often in stocks and other
publicly-traded securities. Various online communities devoted to
this type of investing have recently emerged and have contributed
to the personal investing boom in the United States.
A Stock Trader or Stock Investor
is a securities professional or firm, who buys and sells securities,
such as stocks and bonds. The individuals or firms trading in a
principal capacity sometimes call themselves stock traders or simply
traders. Many people across the world can call themselves stock
traders or part-time stock traders, despite of having another profession
in parallel with their regular trading activities in the financial
markets. When a stock trader has clients, and acts as a money manager
or adviser with the intention of adding value to his clients finances,
he is also called a financial manager. In this case, the financial
manager could be an independent professional or a large bank corporation
They usually need a stock broker, such as a
bank or a brokerage firm, as intermediate. Since the spread of the
Internet banking, they usually use an Internet connection to manage
their own financial portfolios, including ordering the sell/buying
orders, set stop losses prices and define buying/selling prices.
Using the Internet, specialized software and a personal computer,
stock traders make use of technical analysis and fundamental analysis
to help them in the decision process. A stock trader utilize also
several advising and information resorces based on the Internet
and the media, such as financial/business news and data firms (Reuters,
Bloomberg, Financial Times, Yahoo! Finance, MSN Money, AFX News,
Newratings, Cantos). They exclusively trade on their own behalf,
as a principal, investing money on a share or other financial instrument,
which they believe will increase in price aiming to sell it later
Expenses, costs and risk
Trading activities are not free. First of all,
they have a considerably high level of risk and complexity, specially
for unwise and unexperient stock investors seeking for a easy way
to make some extra money. For the other side, stock traders faces
several costs such as commissions, taxes and fees to be paid for
the brokerage and other services, like the buying/selling orders
placed at the stock exchange. According to each National or State
legislation, a large array of fiscal obligations must be respected,
and taxes are charged by the State over the transactions and earnings.
Beyond this costs, the opportunity costs of money and time, the
currency risk, the financial risk, and all the Internet Service
Provider, data and news agency services and electricity consumption
expenses must be added.