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The creation of more money through the use of capital.


The act of placing capital into a project or business with the intent of making a profit on the initial placing of capital. An investment may involve the extension of a loan or line of credit, which entitles one to repayment with interest, or it may involve buying an ownership stake in a business, with the hope that the business will become profitable. Investing may also involve buying a particular asset with the intent to resell it later for a higher price. Many types of investing exist, and each is subject to greater or lesser regulation in the jurisdiction in which it takes place. Legally, investing requires the existence and protection of individual property rights. Investing wisely requires a combination of astuteness, knowledge of the market, and timing.


1. Property acquired for the purpose of producing income for its owner. Just as plants and equipment are investments for manufacturers, stocks and bonds are investments for individuals.
2. Expenditures made for income-producing assets.


  1. physical or real investment: capital expenditure on the purchase of assets such as plant, machinery and equipment (FIXED CAPITAL assets) and STOCKS or INVENTORY (WORKING CAPITAL assets). Fixed capital investment is undertaken by firms, both to replace worn-out and obsolete capital items (see DEPRECIATION) and to increase the firm's total assets (see CAPITAL EMPLOYED), so as to enable it to produce a greater volume of products, and, by investing in the latest technology, to remain competitive. In aggregate terms, net additions to the country's CAPITAL STOCK increase the economy's productive capacity, thus making an important contribution to the achievement of higher rates of ECONOMIC GROWTH and improved living standards.
  2. financial investment: expenditure on the purchase of financial securities such as SHARES and BONDS. PORTFOLIO investment is undertaken by individuals, companies and financial institutions as a means of earning income in the form of dividend, interest and rent payments and through capital appreciation. See CAPITAL ALLOWANCES, ENTERPRISE INVESTMENT SCHEME, ENTERPRISE GRANT SCHEME, STOCK MARKET, FINANCIAL SYSTEM, FOREIGN INVESTMENT, SAVINGS, INVESTMENT INCENTIVE, INVESTMENT APPRAISAL, ACCOUNTING RETURN, PAYBACK METHOD, DISCOUNTED CASH FLOW.


  1. expenditure on the purchase of FINANCIAL SECURITIES such as STOCKS and SHARES. Also called financial investment. PORTFOLIO investment is undertaken by persons, firms and financial institutions in the expectation of earning a return in the form of INTEREST or DIVIDENDS, or an appreciation in the capital value of the securities.
  2. capital expenditure on the purchase of physical ASSETS such as plant, machinery and equipment (FIXED INVESTMENT) and STOCKS (INVENTORY INVESTMENT), i.e.physical or real investment. In economic analysis, the term ‘investment’ relates specifically to physical investment. Physical investment creates new assets, thereby adding to the country's productive capacity, whereas financial investment only transfers the ownership of existing assets from one person or institution to another.
Investment requires that an amount of current CONSUMPTION is forgone (i.e. saved, see SAVINGS) so as to release the resources to finance it. Investment expenditure is a component of AGGREGATE DEMAND and an INJECTION into the CIRCULAR FLOW OF NATIONAL INCOME. In 2003, investment expenditure accounted for 13% of gross final expenditure (GFE) on domestically produced output (GFE minus imports = GROSS DOMESTIC PRODUCT). See Fig. 133 (b) , NATIONAL INCOME ACCOUNTS. In NATIONAL INCOME analysis, investment in the provision of SOCIAL PRODUCTS such as roads, hospitals and schools undertaken by the government is counted as part of GOVERNMENT EXPENDITURE; thus, investment expenditure is normally defined as consisting only of private sector investment spending.

Investment can be split up into gross and net investment:

  1. gross investment is the total amount of investment that is undertaken in an economy over a specified time period (usually one year);
  2. net investment is gross investment less replacement investment or CAPITAL CONSUMPTION, i.e. investment that is necessary to replace that part of the economy's existing capital stock that is used up in producing this year's output. (See DEPRECIATION 2.)

The amount of fixed investment undertaken is dependent on a number of factors other than capital consumption considerations. In national income analysis, the MARGINAL EFFICIENCY OF CAPITAL/INVESTMENT and the INTEREST RATE are important determinants of the level of investment.

The marginal efficiency of capital/investment itself is dependent upon business confidence and expectations about future demand levels and, therefore, plant utilization. The volatility of business expectations in the short run means that planned levels of fixed investment can vary significantly over time, leading to large changes in the demand for capital goods (see ACCELERATOR), that is, large fluctuations in the investment component of aggregate demand leading to larger fluctuations in output and employment through the MULTIPLIER effect (see BUSINESS CYCLE).

In order to stimulate investment, governments provide tax writeoffs on plant and equipment (see CAPITAL ALLOWANCES for details).

Similar considerations apply to inventory investment, with stock levels being increased or decreased over time with changing business expectations.

The long-term significance of investment lies in the contribution it makes to ECONOMIC GROWTH and economic prosperity. Building new factories, adding new machinery and equipment, and investing in new techniques and products enables industry to supply a greater quantity of more sophisticated products and services to the consuming public, while similar investments in the provision of social capital (schools, health, etc.) contribute vitally to the upgrading of general living standards.

At the micro-level a firm's investment decisions depend upon the profitability or cash flow implications of particular investment projects (see DISCOUNTED CASH FLOW) and are considered as part of its CAPITAL BUDGETING procedures. Compare DISINVESTMENT.


References in periodicals archive ?
Cash flows from trading securities were classified as investing activities under FASB no.
08) Net cash used in operations (692) (448) Net cash used in investing activities (264) (2,437) Net cash provided by financing activities 398 2,203 Financial position March 31, December 31, 2005 2004 Current Assets $6,069 $6,826 Total Assets 32,234 32,788 Current liabilities 178 256 Total liabilities 4,368 4,444 Shareholders' equity 27,866 28,344 Working capital 5,891 6,570
Weingarten added, "Further, earlier this week, Pilgrim and its mutual funds adopted a new Code of Ethics which embodies the recommendations of the Investment Company Institute relating to personal investing activities of mutual fund personnel.
His responsibilities will be centered on the firm's principal investing activities, where he will become a member of the firm's Investment Committee.
Aside from investing activities, he led various efforts at Ameriquest Capital's portfolio companies, including setting up a program management and a software development quality assurance group, replacing core business applications, upgrading IT and communication infrastructures, and restructuring a call center.
Lynch said, "The Advisory Group's report documents the substantial success that the Securities and Exchange Commission and the industry have achieved in preventing potential conflicts of interest in personal investing activities.
Accordingly, the restatements will solely affect the classification of these activities and the subtotals of cash flows from operating and investing activities presented in the affected Consolidated statements of cash flows, but they will have no impact on the net increase (decrease) in total Cash and due from banks set forth in the Consolidated statements of cash flows for any of the previously reported periods.
The difference of $1,000,000 in cash flows was accounted for by reclassifying certain cash flow items to investing activities from operating activities.
Venrock was formed in 1969 to build upon the successful investing activities of the Rockefeller Family that began in the late 1930s, when Laurance Rockefeller pioneered early-stage venture financing.
Reclassifying cash receipts from the sale of lease pool equipment from operating activities to investing activities and reflecting the "Gross profit from sale of lease pool equipment" as a deduction in operating activities.
The marginal decline in 1993 third quarter earnings was due to a reduced contribution from corporate investing activities, partially offset by higher earnings from pipeline operations.