What is Investing?
Investing is the act of allocating resources, usually money, with the expectation of generating an income or profit. You can invest in endeavors, such as using money to start a business, or in assets, such as purchasing real estate in hopes of reselling it later at a higher price.
- In investing, risk and return are two sides of the same coin; low risk generally means low expected returns, while higher returns are usually accompanied by higher risk.
- Risk and return expectations can vary widely within the same asset class; a blue-chip that trades on the NYSE and a micro-cap that trades over-the-counter will have very different risk-return profiles.
- The type of returns generated depends on the asset; many stocks pay quarterly dividends, while bonds pay interest every quarter and real estate provides rental income.
- Whether buying a security qualifies as investing or speculation depends on three factors - the amount of risk taken, the holding period, and the source of returns.