And a company could also use profits from economic investments to make financial investments.ġ4 Common Types of Financial Investments in 2022 A company, for instance, could use income or dividends from financial investments to pay for economic investments. You should note that both financial and economic investments can be interdependent. By comparison, financial investments include stocks, bonds, mutual funds, among other assets, as well as economic investments like land, buildings and more real assets. Economic investments, however, are purchased to improve the productivity of a company and ultimately raise its profit margins and stock value.Įconomic investments only include real assets or tangible investments like equipment, machinery, materials, real estate and human capital (referring to employees). As we explained in the section above, financial investments are bought with the intent of making money. Many people use both terms interchangeably, but they are in fact different.
The term financial investment is a broad concept that has both financial and economic definitions. As part of their investment strategy, investors must first determine their risk tolerance by evaluating how comfortable they are with making different types of investments. Generally speaking, the higher the risk that an investor takes, the higher the reward a financial investment could return. This determines how they are combined in a portfolio. These investments are held for a specific interval of time that is called a time horizon.Īs an example, an employee beginning a career could hold onto retirement investments for a few decades, while an investment firm may hold and sell an investment within a few days.įinancial investments could involve one or many different types of assets that are usually bought or sold based on a specific investment strategy. A financial investment is a financial product like a cryptocurrency or a stock that is bought with the goal of making money.Įach investment has specific risks, advantages and disadvantages that will determine how and when investors buy or sell them.īoth individuals and companies make financial investments with the intent of maximizing income or earning a profit.
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