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What is an Investment? - Definition & Overview

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  • 0:02 Definitions
  • 1:01 Types of Investors
  • 2:53 Lesson Summary
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Lesson Transcript
Instructor: Shawn Grimsley
Investment is paramount to sustained economic growth and the creation of wealth. In this lesson, you'll learn what an investment is and find out about different types of investors.

Definitions

Investment is using money to purchase assets in the hope that the asset will generate income over time or appreciate over time. Consumption, on the other hand, is when you purchase something with the immediate intent of personal use and with no expectation that it will generate money or increase in value.

Investment also helps grow the economy because it creates economic activity, such as the buying and selling of goods and services and employing people. Employed people get paid and either save, invest, or spend their money. If they spend their money, businesses make more profits. Businesses can then reinvest the profits in further business activities that expand the economy.

Of course, too much of a good thing can be bad. If everyone is investing, then no one is consuming. If no one is consuming, consumer-orientated businesses, such as restaurants and retail establishments, will suffer. This may lead to layoffs. The key is to find the proper balance between investment and consumption.

Types of Investors

There are many types of investors, including governments, businesses, and individuals that invest in a wide variety of projects, resources, and even other businesses. Governments make investments through their fiscal policy, which is just an economic term describing government decisions relating to taxing and spending. Oftentimes, the government spends money to stimulate economic growth. Here are some examples of government investment:

  • Infrastructure - such as roads, bridges, dams, power plants, and communication systems
  • Education - including public primary and secondary schools and higher education
  • Scientific and technological research - either direct research undertaken by government employees or through grants given to private institutions, and
  • Subsidies to provide aid to certain industries

Businesses make investments to increase their ability to generate revenue and profits that can be either distributed to their owners or reinvested to grow and improve profitability. Let's go over some examples of business investment:

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