Investment is a term with several closely related meanings in finance and economics.
See also: Financial economics, Philatelic investment
- In theoretical economics, investment means the production of capital goods - goods which are not consumed but instead used in future production. Examples include building a railroad, or a factory, clearing land, or putting oneself through college.
- In finance, investment means buying assets, for example equity investment or real estate investment. These investments may then provide a future income and increase in value.
An investment policy
is any government regulation or law that encourages or discourages foreign investment in the local economy, e.g. currency exchange limits.
As globalization integrates the economies of neighboring and of trading states, they are typically forced to trade off such rules as part of a common tax, tariff and trade regime, e.g. as defined by a free trade pact. Investment policy favoring local investors over global ones is typically discouraged in such pacts, and the idea of a separate investment policy rapidly becomes a fiction or fantasy, as real decisions reflect the real need for nations to compete for investment, even from their own local investors.
A strong and central criticism of the new global rules, made by many in the anti-globalization movement, is that guarantees are often available to foreign investors that are not available to local small investors, and that capital flight is encouraged by such free trade pacts.
Investment policy in many nations is tied to immigration policy, either due to a desire to prevent human capital flight by forcing investors to keep local assets in local investments, or by a desire to attract immigrants by offering passports in a safe haven nation, e.g. Canada, in exchange for a substantial investment in a business that will create jobs there. A frequent criticism of such joint immigration-investment policy is that they encourage organized crime by providing incentive for money-laundering and safe places for "bosses" to move to when the heat rises in their home country.
See also: tax, tariff and trade, globalization, organized crime, anti-globalization movement, immigration policy.
Index investingIndex investing
, also called indexing
, is a method of investing whereby a fund (or individual) buys the same stocks in the same proportions as in a target index. The objective of this method is to buy and hold the index. The idea is that technical analysis
and fundamental analysis
are flawed because they require the evaluation of the past performance of securities in order to predict future returns of the securities. It is impossible to accurately predict future returns based on the past records of securities, even on a short term basis.
The return achieved by indexing is the return of the index. If the index tracks a market sector, then the return is that of the sector. If the index tracks the market as a whole, then the return is that of the market. Practitioners of indexing make a conscious decision not to try to outperform the market, rather they decide to obtain the market return.
Ethical investingEthical investing
attempts to ensure that invested funds are not used to violate the investor's most basic moral
values or ethical codes. There are a wide variety of means to ensure that invested funds are used ethically, and a wide range of interpretations of what "ethics
" mean relative to investing.
Contrast ethical purchasing