An initial investment is the starting amount of money that it takes to either open an account or establish a buy-in relationship. The term “initial investment” is primarily used in two distinct but related sectors: banking and long term investment brokering. In banking, an investment in the form of an initial deposit is usually required to establish ownership of an account. The same initial deposit in investing also establishes ownership, but is usually put down in the hopes of using it to spurn later growth down the line.
In most cases, an initial investment is the first of many more payments and deposits that will happen over the lifetime of the account or investment vehicle. It is often seen as a way of securing something. More money is usually added or invested over time, and the capital is most often intended to grow. The first deposit is what kicks things off.
Where bank accounts are concerned, an initial investment is usually little more than a primary deposit. Most financial institutions will only issue checking, savings, or other accounts to customers who are committed to keeping at least a little bit of money in them. A deposit is usually required along with the application materials.
In nearly all cases, bank deposits belong to the customer at all times. Once the account has been successfully opened, the deposit credits to the account and is money that the customer can spend, delegate, or withdraw. Many banks have minimum account balances that must be maintained, but the money in the account is always the customer’s.
The same is not always true with initial investments in business or stock and bond trading. In these settings, the initial payment is more like a buy-in: the consumer puts up a certain amount of money to get access to investment materials or to a specific financial instrument. The hope is usually that the initial investment will return more money than was actually put in.
Franchising and small business ownership is one place where initial investments are common in the business world. A person interested in purchasing a franchise or setting up a small business must usually make an initial investment that will cover the purchase of basic supplies, employee training, and advertising, among other things. If the owner manages the store or business well and turns a profit, that initial investment is likely to be made back, often several times over. Otherwise, that money is usually lost.
In more traditional investing, the initial payment is the amount of money that someone uses to purchase stocks, bonds, or mutual funds. These instruments all tend to fluctuate in value based on market shifts. An initial investment can appreciate or depreciate over time. Once invested it can normally be shifted around, but there is rarely ever a guarantee of a full return.