INVESTMENT TALK WITH EMMA: What exactly is Investment?
There are many definitions of investment. But investment is basically the use of savings to produce future income. It involves the use of funds to acquire capital goods which are items to produce other goods and services. Examples can be machinery, real estate, stocks, and knowledge. Yes knowledge can also be a capital good.
Smart people invest part of their current incomes in order to consume more in the future. They can do this by letting other people invest their funds for them e.g. mutual funds and REIT. Some buy ownership in businesses in form of shares; buy incoming generating real estate, while others invest in their own businesses.
Investment is very important for economic development and growth. The money deposited in the banks is lent out to business firms. The firms use the funds to invest in raw materials, buildings and equipment to expand production. The expansion of businesses will create more jobs and more income in form of taxes for government.
Many firms also raise funds for business growth through the issuance of stocks and bonds to investors. Government also issue bonds for investment in infrastructures like roads, dam, ports, schools etc. Investment in infrastructures aid optimal output by businesses, which will have multiplier effects on the economy.
All forms of investment by individuals, businesses and government requires foregoing present consumption of goods and service in order to have a greater and better future consumption. Investment enhances personal, organisational and national ability to produce goods and service thereby increasing standard of living.
As young people are we ready for reduce or forego our current unnecessary consumptions in order to have a brighter and rewarding future? Or do we want to retire into penury? The choice is ours.
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Next week we shall talk on investing in ourselves. Unless you are already financially independent, inherited substantial asset or you have a solid trust account opened on your behalf by your parents, then you may not really need to learn how to invest on yourself.
But if you are an average person, your primary source of income for saving and investment is by getting a job or working for people.
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The book for the month is multiple streams of income by Robert Allen.
I got this from Yahoo finance
http://finance.yahoo.com/news/10-reasons-not-rich-yet-000000742.html