Investment

Investment is the act of committing capital to an asset with the expectation of generating income or capital gains in the future. Investors seek to increase wealth while managing risk, balancing potential returns against time horizon and liquidity needs. Returns can take the form of periodic income, such as dividends or interest, and capital appreciation when the asset's price rises.

Common investment categories include equities (stocks), fixed income (bonds), real estate, cash equivalents, and pooled vehicles such as mutual funds and exchange-traded funds (ETFs). Other classes include commodities and alternative investments like private equity, hedge funds, or venture capital. Each class has different risk, return profiles, liquidity, and tax considerations.

Portfolios are built through asset allocation and diversification to spread risk across assets, regions, and sectors. Investment strategies range from passive approaches (for example, broad-market indexing with periodic rebalancing) to active management. Costs, including management fees, trading costs, and taxes, influence net performance and should be weighed against expected gains.

Performance is evaluated with metrics such as total return and yield, and risk-adjusted measures like the Sharpe ratio or alpha relative to benchmarks. Investors face various risks, including market risk, credit risk, liquidity risk, and inflation risk, as well as behavioral factors. Markets are regulated to promote transparency, fairness, and financial stability.

A practical process involves defining goals, assessing risk tolerance, establishing a time horizon, selecting appropriate assets, and regularly reviewing and rebalancing to reflect changes in circumstances or markets.