What are 4 Types of Investments?

What are 4 Types of InvestmentsThe essence of investments is to invest capital (material or non-material form) in various investment projects, securities, funds in order to make a profit in the future. Very often, some types of investments are compared with speculation, however, these are two different concepts. After all, speculative projects involve investing money for up to one year (most often for a month or two). All investments for more than a year are already investments. But there are types of investments that fall under these two definitions, such as operations on stock exchanges. They are mostly short-term in nature, but they are not called speculation. You can consider in more detail the main types of investments.

Types of real investments

This type of investment differs from others in that money is invested here in real things: enterprises, privatized objects, real estate. According to the classification, real investments are:

  1. Material – the creation of enterprises, investment in the output or trade expansion.
  2. Non-financial – when money is invested in staff development, promotion of a brand or trade mark, market research, advertising, design of a sales area, etc.

Keep in mind that such investments are considered risky and therefore require professional management. Before deciding on investments, for example, in a specific production, it is recommended to get the opportunity to influence the company management, and it is best to own the main rate of shares. There are cases when the views of the company management and the investor on the methods of distribution of investment funds did not coincide. As a result, conflict situations arose. Good management presupposes continuous market analysis, search for consensus between stakeholders, and forecasting of future results.

Features of real investments

Unlike the national currency, the rate of which can be up and down, objects of real investment are rarely devalued. For example, an investor bought an apartment in order to rent it out, and it only grows in price on the background of general inflation. The level of profitability of such investments is quite high. This is not a fixed interest in the bank, as is the case with a deposit, but an opportunity to earn much more. After all, by expanding production, modernizing, and improving the qualifications of personnel, you can get more quality products, and therefore more money.

But there are also certain risks of this type of investment:

  • technological progress affects the rapid loss of relevance of this or that equipment. Real objects require constant investment. The investor is introducing new technologies, while the competitor has already acquired something even more high-tech.
  • some investment objects have low liquidity. For example, purchased raw materials quickly get out of order or equipment was outdated.

In the latter case, financial instruments look more attractive. They can be easily sold on any exchange. But it is the real investments that allow the business to develop, to act more broadly and effectively.

Real investment for individuals

For individuals, real investment is a procedure that does not require registration of a large number of papers (with the exception of investing in opening their own company):

  1. Buying an apartment, house or other premises for further lease. A very profitable investment is the purchase of an immovable object in a house under construction and its subsequent sale after commissioning at a significantly higher price.
  2. Purchase of various equipment in order to rent it out or resell it at a better price.
  3. Purchase of antiques, which only grows in price over time.
  4. Opening your own company.

Types of financial investments

This type of investment is considered the most popular and widespread. Financial investment is a process when an investor uses various investment tools in order to get a profit. In addition, a similar method is used to diversify risks, gain control over the issuing company, and preserve capital. The qualities of financial investments are:

  • availability for all types of investors;
  • turning to the secondary market;
  • portfolio investment is available;
  • high level volatility;
  • the level of profitability is potentially high;
  • the process is regulated at the legislative level.

Of course, there are risks of a decrease in profitability and loss of investment capital, but this is possible in any type of investment.

The structure of financial investments is distributed by markets:

  • Currency. FOREX trading, buying options for the further purchase of currency, etc.
  • Credit – purchase of government or corporate securities, bonds and other debt securities.
  • Stock – buying / selling shares of various corporations and enterprises.

What types of financial investments are there?

Stocks are considered the most highly profitable, but also risky instrument. Bonds are usually secured by the government and are less risky, but also less profitable. Mutual investment funds are considered to be something between the two previous investment instruments, because in this case the investors’ money is managed by professionals, which reduces the risk of losses. Financial investments also include investments in precious metals, futures, options, forwards, depositary receipts.

How financial investments are valued:

  • an analysis is carried out (it is better to entrust these actions to specialists), taking into account external and internal data. The economy and the state of a specific financial sector, the forecast for the exchange rate and stocks are studied, the reporting of management and financial nature is analyzed.
  • determination of investment efficiency. Optimal and successful investments are those that allow funds to grow steadily. Economic performance evaluation includes the following methods: calculating the payback period, internal and calculated rates of return, determining the net worth and assessing profitability.

If we take into account all the results obtained, then you can choose the most suitable financial investment instrument. Keep in mind that in addition to getting a profit, this type of investment allows companies to increase their influence on the current market segment. Economists recommend forming an investment portfolio from different types of financial investment assets. These can be, for example, purchases of shares, deposits and currency. If the bank goes bankrupt, there will still be stocks and currency.

Intellectual investment

This type of investment involves investing in intellectual products. Intellectual property can be private or collective. Objects for investment are:

  • copyright patents;
  • informational property (knowledge, experience, useful ideas);
  • property of a licensed nature (the right to use goods and services with fixed license);
  • purchase of scientific and technical products (information software, know-how).

Investments can be technological, technical or artistic. The latter, for example, includes a previously unused design solution for a trademark or logo, technical – improvement of equipment, mechanisms and instruments. Buying innovative software is also an investment of money.

This type of investment is considered promising today, but it also carries a lot of risks. After all, no one can guarantee that the acquired technology, for example, will be successful in production. However, the rapid development of the market simply forces us to look for new projects and ways to improve the business, so investments in intellectual property are very relevant. The creation of special exchanges that trade ip-assets only confirms this fact. Intellectual investments are capable of making a “breakthrough” in the production sphere with average financial investments. Such investments have a beneficial effect on the entire economy of the country as a whole.

Investments by risk and return

The conservative type of portfolio investment involves investing in bonds and government stocks. There is no need to wait for special income, however, the risks are minimized. Diversified investments are based on the division of the degree of risk between different financial investment instruments, where the high profitability of some is insured by the reliability of others. The profitability of such a portfolio is equal to the average market indicator.

A conservative approach is inherent in risk-averse investors. A moderate investment strategy involves the use of an equal share of risk-free and highly profitable “dangerous” investments with high liquidity. Aggressive investment portfolio management aims to get as much income as possible. But in this case, the risks are very high, because the portfolio is formed from the shares of “green” companies that have not yet gained authority in the market, but are rapidly developing from new startups, as well.

Category: General

Tags: finance, investment