The Definition of Investment and Its Benefits

vemuda.com - Investment, this term has become more familiar in the last two decades in the world. The millennial generation is increasingly opening its eyes to financial planning, one of which is by investing.

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What is investment? Many people often say this question because they still doubt whether the investment is profitable or even detrimental.

Don't be surprised if many people assume like that because there are many cases where people go bankrupt because of investment. But behind that, there are also many people who are successful and rich because of investments, for example, Warren Buffett, who has been investing since he was eleven years old.

So it's normal that now he has a total wealth of up to 72.5 billion US Dollars. Why can he do that? What exactly is an investment?

1. Meaning of Investment

Now investment is an effort to invest capital or funds with hope that they will get a profit in the future. In the Oxford Dictionary, investment means the money that you invest, or the thing that you invest in. 

Meanwhile, the definition of investment according to Wikipedia is the dedication of an asset to attain an increase in value over a period of time. Investment requires a sacrifice of some present asset, such as time, money, or effort. 

So with investment you just need to invest and wait for your funds to multiply. Therefore, it is not surprising that there is a term that investors still make money even though they are asleep. That is one of the characteristics of investment.

For example, David bought one grams of gold bullion for USD 54 per gram by 2022, the gold is tightly stored in his private vault.

After five years the price of gold per gram increases to USD 56 per gram. David then sell the gold he had and make a profit of USD 2 per gram.

David's act of buying gold in 2022 is what is called an investment and a profit of USD 2 of the difference in the purchase price is called profit. So we can imagine how much of wealth David will get if he spends a large amount of money.

2. Investment Type

Generally, there are two types of investment; long-term investment and short-term investment. Short-term investments are investments where the returns are expected to be realized within a period of at least 1-3 years, while long-term investments are investments where the returns can be obtained in a period of more than 3 years.

The term of this investment is generally also related to the amount of the profit. This is because long-term investments usually provide greater returns than short-term investments. This is because short-term investment profits can be obtained more quickly.

However, investing also carries risks because someone may lose funds or other assets when the investment does not meet expectations or even fails.

3. Investment Benefits

Now the first benefit of investment is to provide space for our assets, then the assets will continue to grow, so that our assets can also fight with the inflation rate. This is different from saving money in the bank which makes our assets consumed by the inflation rate.

The second is to increase assets. This can be applied to the fate of property purchases of land, apartments or houses where the prices will rise in the future. However, the increase in asset value did not occur in a short time. It takes a long time and patience to meet future needs because there are many unexpected needs in the future.

Investment is very appropriate as a means of fulfilling needs that support the future. Investment in the present aims to support and support life in the future because its value will increase.

Next is about a frugal lifestyle. With investment, someone will try to live frugally to keep investing, in the end that person will avoid buying things that are not important and are more economical, avoiding debt.

With a simple lifestyle, a person will avoid debt. People who have an investment commitment will avoid debt and prefer to live frugally to improve economic conditions in the future. Thanks for reading.