Lesson 2: What is an Investment?

Let’s begin with a pretty basic idea and define what an investment is. You have probably heard “John bought Apple stock years ago that turned out to be a great investment” or “by earning a college degree I am investing in myself.”

An investment in its simplest terms is a purchasing of an asset in with relative certainty that the asset you purchase will generate income and/or increase in value.  Another way of looking at an investment is that you are sacrificing immediate consumption in hopes of a greater payoff at some point in the future.  Let’s go through some examples to paint a clearer picture.

Key Points

  • An investment is an asset that will either increase in value and/or generate income.
  • Returns are how we measure how “good” or “bad” an investment is.

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