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What is a financial investment?

A financial investment is a form of deferred consuption.  Value (usually expresssed as money) that is available today is not used for consumption but is used instead to purchase a tangible or intangible asset with the realizstic expectation of a return at some point in the future to conpensate for the defrral of the consumption and the risk inherent in the investment itself.

To recap, an investment involes:

  • discretionary deferral of present consumption to the future to make the investment, and
  • risk of loss to the investor, and
  • reasonable expectation of a market or better rate of return to the investor.

The market return might mean that the sale price is greater than the acquisition price, and/or that there will be a stream of cash benefits (e.g. dividends or interest) between now and when the original investment is returned.

Taken from : Making Sense on the Dollar, by Scott K. Anderson, Jr. CPA, CFP®, EA

 
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