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
