Investment involves allocating funds into assets to achieve financial gains via value appreciation or income generation. This differs from saving, which simply ties up the money for future use. Investment can be made in the form of stocks, bonds, real estate, or alternative investments. It is important to understand the different types of Investment and their risks, in order to find an investment that suits your goals and risk tolerance.
Investment is one of the most fundamental concepts in economics, and economists have studied it intensely. Its surges and drops are a main cause of recessions. But it is not the only concept that is important to understanding the economy. Saving behavior, which is the lynchpin of investment, is much harder to study than firm behavior. The saving response of individuals is not well understood, and so it is hard to know what policies are effective in increasing investment and decreasing consumption.
When you invest, you take a chance that your money will be worth less when you sell it than what you put into it. There are strategies to mitigate that risk, such as dollar-cost averaging and diversification. However, the most important thing to remember is that you may lose some or all of your initial investment, even with a properly diversified portfolio. This is especially true if you invest in non-FDIC insured investments like securities, mutual funds and private equity, which are subject to varying degrees of credit, market, liquidity and interest rate risk.
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