Finance

Real Investments: Types, Characteristics and Management

WhatsApp Group Join Now
Telegram Group Join Now

Many people get the wrong impression when they hear the term “real investments” used in economic discourse. But, let’s bring some clarity to this dilemma.

Investments are classified according to their object, and a distinction is made between real investments and financial investments (portfolio investments). Investing in the stock market, bonds, or commodities can be considered a form of financial investment. On the other hand, long-term investments are the most accurate way to characterize real investments. Read on for a deeper analysis of their differences.

Real Investment vs. Financial Investments: A Deeper Analysis

Trading derivates like the S&P 500 Futures can be classified as a financial investment. They are not intended for long-term ownership but for capitalizing on price movements. Simply put, futures represent contracts by parties to buy or sell an underlying asset at a predetermined price on a specified future date. However, they are different from stocks because they typically involve a high degree of leverage, which can increase both potential gains and losses.

The S&P 500 Futures market allows investors to speculate on the future value of the S&P 500 index – composed of 500 large publicly-traded US companies without participating in the management of the company or gaining full ownership. 

In contrast, if a company is bought in its entirety, it belongs to the real investment category. Real investments are characterized by investing money to maintain and expand the company’s assets. These investments can be tangible or intangible and typically consist of fixed and working capital and intellectual property. In other words, real investments can take various forms:

  • As productive capital
  • Acquisition of conventional real estate, land rich in natural resources, etc.
  • Investment in intangible assets (scientific works, inventions, trademarks, intellectual property, etc.)
  • Acquisition of a new business project

The structure of the real investment market includes direct investments in enterprises, investments in objects of privatization, investments in real estate, and other objects of real investment.

Main Characteristics of Real Investments

Main Characteristics of Real Investments

Real investments are for the long haul. Take real estate for example, it is one of the most profitable means of amassing wealth. As Barbara Corcoran, the founder of Corcoran Group famously said in a podcast: “Owning made me rich”. He narrated how he started by buying a small studio and later transitioned to a 10-room apartment. It may be debatable, but famous billionaire, Andrew Carnegie affirms that 90% of millionaires became wealthy through real estate.

Compared to financial investments, real investments are usually less risky and more efficient. Although trading stocks or forex might make you rich overnight, they are riskier and might also drain you faster. Almost any company will develop faster and more efficiently by making real investments, but it’s capital-intensive. 

In some cases, real investments may become obsolete with the emergence of new technologies. This usually occurs when an individual or company invests in technology or buys a project that becomes obsolete within a short time. The investor is left with the choice of innovating or allowing the project to die off.

Real investments usually have comparatively low liquidity due to lower trading volumes and longer trading times. A real estate property, for example, may take more than six months to sell.

It is also important to mention the efficiency of direct investment. Two basic types of indicators are used to determine the efficiency of real investments. They are dynamic indicators and static indicators.

Dynamic indicators: Return on Investment Index; internal rate of return; Discounted recovery period.

Static indicators: Period of return on investment; Investment efficiency ratio.

Real Investment Management

Although direct investments are less risky than financial investments, there are still some risks involved. Therefore, any investment activity should be taken very seriously.

Before investing in a company, pay close attention to the company’s financial situation to fully grasp the efficacy of your real investments. However, to influence the life of the company and participate fully in its development, you’d have to obtain full control of the company by acquiring a controlling share.

Otherwise, you will not be able to control the company’s operations fully, and your interests may not always coincide with those of other investors.

Therefore, real investments can take many different forms; however, their primary purpose is to enhance the operation of the company in order to increase the likelihood of a profitable return in the foreseeable future.

Rate this post
HomepageClick Hear

Aman

My name is Aman, I am a Professional Blogger and I have 8 years of Experience in Education, Sports, Technology, Lifestyle, Mythology, Games & SEO.

Related Articles

Back to top button
Sachin Tendulkar ने किया अपने संपत्ति का खुलासा Samsung ने लॉन्च किया 50 मेगापिक्सेल वाला धाकड़ फोन Oneplus 12 : धमाकेदार फीचर्स के साथ भारत में इस दिन होगी लॉन्च Salaar के सामने बुरी तरह पिट गाए शाह रुख खान की Dunki 1600 मीटर में कितने किलोमीटर होते हैं?