An investment is an asset or item acquired with the goal of generating income or appreciation. Appreciation refers to an increase in the value of an asset over time. When an individual purchases a good as an investment, the intent is not to consume the good but rather to use it in the future to create wealth. An investment always concerns the outlay of some asset today—time, money, or effort—in hopes of a greater payoff in the future than what was originally put in.

For example, an investor may purchase a monetary asset now with the idea that the asset will provide income in the future or will later be sold at a higher price for a profit.

The 3 Types Of Investments

Ownership Investments

Ownership is what comes to mind for most people when the word investment is batted around. These are the most volatile and profitable class of investment. The following are examples.

• • • Stocks – Owning stock means owning a portion of a company. It may be a minuscule stake, but it’s ownership.
    • Business – The money put into starting and running a business is an investment.
    • Real Estate – Houses and apartments that are purchased to rent out or to resell are investments.
    • Precious Objects and Collectibles – Gold and precious gemstones, Impressionist paintings, and signed LeBron James jerseys, can all be considered ownership investments, provided that these objects were bought with the intention of reselling them for a profit.

Lending Investments

Lending money is a category of investing. The risks generally are lower than for many investments and, consequently, the rewards are relatively modest.

A bond issued by a company or a government will pay a set amount of interest over a set period of time. The only real risk is that the company or government will go bankrupt, in which case the bondholder may get little or none of the investment back.

• • • Savings Accounts
    • Bonds

Cash Equivalents

These investments are “as good as cash,” which means that they can be converted back to cash easily and quickly.

• • • Money Market Funds

These Are Not Investments

• • • Education
    • Clothing
    • Beds
    • Cars
    • Mobile phones
    • TVs
    • Anything else that depreciates in value with use and time, is not an investment