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The word “investment” means the purchase of assets, where an “asset” is defined as something which generates value. This value can be cash income or an increase in the value of the asset, and needs to be distinguished from work where the worker gets paid for their effort or time. Investment occurs at all scales of finance from personal finance up to the financial strategies of whole countries.

Every business is involved in investment as it uses the assets it owns or controls to generate an increase in value in terms of either cash flow or increasing asset values. These assets used by a business can be either physical or not.

Assets all have a degree of risk, as well as a likelihood of generating value. Assets might include such things as property, land, commodities, stocks, bonds, financial derivatives such as futures or options, or a business. Different assets have different amounts of risk as well as generating differing amounts of value. A major part of the decisions made in investing involve the estimation of both the risks and possible returns relating to a particular asset.

The risk of an investment not only includes the risk that zero value will be generated but also the risk that the original sum invested can be partially or wholly lost. Risks and returns also change over time.

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 types of assets which can be invested in include such things as metals (such as gold or silver), jewelry, bonds, art, stocks, shares, commodities, and other things. Each asset category will have different risks and returns associated with it.

Want to find out more about Money and Finance, then visit Thomas Goldman’s article site (2000 articles and counting!) on how to choose the best investments for your needs.

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