In this site you will find all kind of information related to the investment world, starting by its definition and then explaining in detail the types of existed investments, those well known and not so well known. This site is not responsible for the use of information from the user. Information about different types of investments has been compiled according to many writers, and subjective opinions based on personal experiences as well.
2) Investments, definitions:
Investments are putting capital into any civil or business activity, for a certain time aiming to get an economic profit. In business, investments are all kinds of purchases in order to keep the company working or to enlarge its productive equipment. Global investments are those investments made in one country, as one of the principal political economy variables and of its process of development. The main objective of investments policy is the composition of social fixed assets, technical capital, and of technicians. As for underdeveloped countries, they need investments from foreign capital in order to develop its economy. It is necessary to distinguish between gross investment, which is the total amount of investment in a specific time, and the net investment, same as the gross investment minus the part dedicated to the maintenance and renewal of fixed capital. If the results of net investments are negative, it is said that there is a divestiture process.
3) What important features do the word investments involve?
Related financial resources: the investments are formed by flow of financial resources. In this commercial or business activity there are two flows of opposite sign:
A) The real flow (inflows and outflows of real assets) and the financial or money flow composed by incomes (collections) and outflows (payments) of financial goods (money).
Certainty in the initial payment and uncertainty as to a possible gain in future profits. The investments always have the risk factor. Therefore, we must estimate future disposable income.
There is no quote to the object in which the investment is materialized: the investment concept is valid only if there is initial payment, the expectation of receiving future disposable income and a specific period of time, even if it is a real estate investment or on financial assets, or any other, there is no quote about the object of our investment though.
4) Investment elements:
Many writers coincide in considering the following as investment elements:
A) The party that purchases or invests (company or individual)
B) Its object (for example: when a personal property is purchased for the company)
C) The cost of initial investment. Initial payment for the project.
D) The takings and payments of investments during its useful life.
E) The periods when the project will be profitable.
F) The residual value at the end of the investment.
5) Investment classification:
A) Investments in fixed assets: it measures the company expenses on the physical structure: the business or company so-called plant (e.g.: factories) and on the equipments (fixed assets or personal properties)
B) Investments according to the function of the endeavor: renewal, enlargement, improvement or strategy.
C) Gross and net investments: capital goods (except land) could fall into decay or reduce in value due to its use or time. This consumption is known as depreciation. As regards a specific amount of investment on the economy, one part replaces the expended capital and the other part increases the capital goods. The total level of investment is called gross investment, whereas the net investment is due to increase the amount of capital goods.
D) Related to the party that makes the investment:
Private or public individual
E) According to its intention:
F) Temporary investments: are bonds or other drafts which are easily sold and over which there is an intention of cashing them within the year (example of these investments: quoted shares, debt securities or capital securities, futures contracts with liquid markets, etc)
G) Permanent investments: they are bonds and other drafts over which the investor’s intention is to hold them for more than one year (example of these investments: assets on controlled entities, assets on related partnerships, other permanent investments)
H) According to its profitability:
Fixed income investments: they are bonds or drafts which are always connected with a fixed profitable (eg: fixed –term deposit), and allows the investor to determine its value at a certain time.
Variable income investments: they are bonds or drafts connected with a yield whose amount depends on the value of the factor used for its establishment.
I) according to the control over the issuer, they are classified as follows:
– Investments of controllers: they are those investments held by an investor who acts as a controller over the issuer.
– Investments of non-controllers: they are those held by an investor from an economic sector who does not act as a controller.
6) Selection criterion of the investments:
The Selection criterion of the investments can be classified in two groups:
A) Static criterion: the selected investments which do not consider the time, that is to say, the cash flows are considered and operated with them as if they were amounts of money, independently from the moment when they are cashed or paid (the concept of financial capital is not used). They are simple methods, but this simplicity makes them work simply in practice in order to have a global view on the investments. It is essential to be careful with its usage due to its limitations. Most common criterions are:
– Method of net cash flow
– Method of recovering term
– Method of profitable account rate
B) Dynamic criterions: the concept of financial capital is used (besides taking into account the currency, the moment when the resources are purchased or sold is also considered). In order to be compared, its capitalization and update or discount, is also taken into account.
These selection models of investments are much more precise as they take into account factors such as inflation, taxation, and others. The most commonly used are:
A) Pay back B) Net current value criterion (V.A.N.), C) profit rate criterion (T.I.R.)
7) Macroeconomic factors:
A) Inflation: it is the devaluation of the currency over time.
B) Taxation: it is the fiscal laws and its direct effects, such as tax payment which has a great importance to investments. When investments are valued and analyzed, it must be taken into account that the negative flow represents the tax payment (and so tax relief), this is one of the factors upon which the entrepreneur may act by means of amortizations, financial resources, etc.
C) Technical progress: it is of great importance to study the investment processes. Its wrong estimation may cause the invested object obsolescence before the stated time.
8) The costs on our investments:
It is of great importance that we analyze in depth the costs under which we will go into as a result of our investment.
A) Market price – Cost = Result B) Cost + Benefit margin = Market price
Cost is synonym of expense (consumption or transformation). This expense is related to a specific objective (which differs from loss). When it comes to cost, we mean all the investments made in order to purchase a product or to provide service, as well as to assign them to partial investments (when we have different kinds of costs).
When analyzing the different investments that we had in portfolios, it is important that we could define which are going to be their average costs.
9) Profitable investments:
Before getting deeply into this website by being informed about different kinds of investments, I would like to talk about their profitability. Most people think that the more money they invest the bigger profit they will get. However, it must be taken into consideration that the profit is measured in terms of average, and so it is not proportionally direct to the invested money, which must not be always like that. There are some people who invest little money and get extraordinary profits, and also those who invest big amounts and they lose everything. So, do not be discouraged if your capital is small since there are other factors which are of great importance such as risk, good ideas, business administration and others.
10) The value of good ideas:
Despite having a big initial capital at the moment of the investment is important, good ideas may also be even more important. These ideas are unlikely to be found in forums or website since they would not be good ideas any longer and that business would become massive to such extend that everybody would invest in that “good idea”. In this website you will be able to be informed about the different kinds of investments, this is just a guide which explains what investments are. We hope you find it useful in order to get an extra income and so that you could take an early retirement.
Remember: a good idea may be materialized in thousands or millions of dollars, but, in order to get it, we must think differently to the majority, we must analyze possible investments from a different point of view and we must fulfill it confidently.
11) Related video:
12) External links:
Investment planning tips with guide to choose best investment
Definition of investments
Investment – Dictionary reference