An investment refers to the money committed to a specific fund or business venture, with the expectation of a profit. Profit can come in the form of interest, income, or an increase in an investment’s value.
Investments, like savings, can be a way to preserve one’s capital (as opposed to spending). However, unlike savings, they are actually meant not just for capital preservation, but also for capital growth.
Despite the fact that the main purpose of investments is capital growth, there are instances when investing can mean a loss of the principal sum or capital. This risk always comes with investing. It should be taken into consideration when deciding to invest or not and where to invest.
The risk that accompanies investing depends on the type of investment. Financial instruments like bonds and treasury bills are considered to be low-risk investments. Note that deposit accounts, though sometimes called “no-risk investments,” have such low returns that they are considered by most to fall simply under savings, hence the term savings accounts.
On the other hand, stocks, which have a huge potential for high returns, are considered to be high risk. Investing directly in a business is also high risk, but the profit gained from this can be even higher than that in stocks.