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.
- Investors can take the do-it-yourself approach or employ the services of a professional money manager.
- 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.