Understanding Investment: Definition and Basics

Reading time: 2 min.

Investment Definition

Investment is the act of allocating resources, usually money, with the expectation of generating an income or profit. It is a crucial aspect of personal finance, business, and the economy as a whole. Here are some key terms and concepts related to investment:

Types of Investments


Stocks are ownership shares in a company. When you buy a stock, you become a shareholder and have a claim on the company's assets and earnings.


Bonds are debt securities issued by companies or governments. When you buy a bond, you are lending money to the issuer and receiving interest payments in return.

Mutual Funds

Mutual funds are investment vehicles that pool money from multiple investors to buy a diversified portfolio of stocks, bonds, or other assets.

Real Estate

Real estate investments involve buying and owning property, such as a rental property or a commercial building, with the goal of generating rental income or capital gains.

Investment Strategies


Diversification is the practice of spreading your investments across different asset classes, sectors, and regions to reduce risk and increase potential returns.

Dollar-Cost Averaging

Dollar-cost averaging is an investment strategy where you invest a fixed amount of money at regular intervals, regardless of market conditions.

Value Investing

Value investing is a strategy where you look for undervalued stocks or assets that have the potential to increase in value over time.

Investment Terminology

Return on Investment (ROI)

ROI is a measure of the profitability of an investment, expressed as a percentage of the initial investment.


Risk refers to the possibility of losing money on an investment. Different types of investments carry different levels of risk.


Liquidity refers to how easily an investment can be bought or sold without affecting its price. Cash is the most liquid asset, while real estate is less liquid.

Investing can be complex, but understanding these key terms and concepts can help you make informed decisions and achieve your financial goals.

Read also:

Subscribe to our newsletter