Investment means the sacrifice of a certain present value for possible uncertain future value. It is a choice between consumption in the present and consumption in a future time. It refers to the purchase and continued ownership of some form of assets over a period of time with the object of earning continuing income and to secure maximum possible profits from capital value increases. The expected income can be a periodic inflow of money such as rent from a house, dividends from shares or interest from bonds as well as the capital sum of money such as profit from selling shares or capital gain from selling a property.
The types of investments may be broadly classified into three categories. The three categories are financial investments, tangible investment and restate investment.
Financial investments involve contracts written on paper such as stocks, bonds, treasure bills and debentures. In such investments, an investor is allowing some other party the use of the money invested in return for an income to be received in the form of interest, dividends and capital gain.
Corporate bonds, government bonds and treasury bills are investments made strictly for the income they produce. For the investors, these investments generally represent good security for the capital invested plus a fixed income. These investments are easily converted into cash. They are highly liquid and provide a cushion against emergency needs. However, the incomes produced are easily eroded by inflation.
A dividend paying common stock, on the other hand, could provide a steady stream of income as well as some degree of hedge against inflation and a possible capital gain upon the sale of the stock.
Tangible investments refer to the purchase of tangible items such as commodity futures, gold futures, precious metals, gems, art objects and antiques in anticipation of a rise in their value in the future. Although tangible assets such as stamps, coins and works of art have sometimes proven to be highly profitable, they can be very illiquid as the market for such investments tend to be small. In addition, the value of such investments are not definite and are highly susceptible to swings in fashion and taste.
Real estate investments may be direct or indirect, direct real estate investment may take the form of investment in development land, the redevelopment of a property or investing in built up income producing properties such as a residential unit, office space or a hotel. Indirect investment in real estate may take the form of investment in shares of property companies.
As with other forms of investments, an interest in real property has value because it is expected to produce future benefits for the investor. Such benefits generally take the form of future cash flows and appreciation in property values. Real estate assets, however, possess certain characteristics that are unique from those of other investments. These features have an impact on the level, timing, or riskiness of the future benefits of a real estate investment when in comparison to other forms of investment.
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