Investments

Definition

Investments are assets or items acquired with the goal of generating income or appreciation. They can include stocks, bonds, real estate, and other financial instruments.

5 Must Know Facts For Your Next Test

1. Investments typically involve risk and the potential for both profit and loss.
2. The main types of investments are equities (stocks), fixed income (bonds), and real estate.
3. Diversification is a key strategy in managing investment risk.
4. Time horizon and risk tolerance are critical factors in investment decision-making.
5. Compounding returns can significantly increase the value of investments over time.

Review Questions

• What are the main types of investments?
• How does diversification help manage investment risk?
• Why is understanding your time horizon important when making investments?

Related terms

Equities: Financial assets that represent ownership in a company and entitle the holder to part of its profits.

Bonds: Debt securities issued by entities such as governments or corporations to raise capital, paying periodic interest and returning principal at maturity.

Diversification: An investment strategy that involves spreading out investments across various asset classes to reduce overall risk.