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.
- 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.