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Differences between Real and Financial Investments

ArticleID 103  
Writer Isaac Thuku
Category Personal Article

Investment is normally associated with various activities, but the Main goals of all activities are simply to utilize the funds during the time it will take the investor to gain wealth.

Funds for investment come from various sources including, assets that you already have, loans and personal savings. By making sacrifices and investing their savings, investors hope to improve their future by increasing wealth. However, it is important to note the two types of investment;

• Real Investment

Real investments are concerned with tangible assets like land or property.

• Financial Investment

Financial investments involve written or electronic contracts.

Differences between Real and Financial Investments

Basically, financial investment differs from real investment because;

• Financial assets are divisible, whereas most physical assets are not. An asset is divisible if investor can trade a small portion of it. In case of financial assets it means, that investor, for example, can buy or sell a small section of the whole company as an investment object by buying or selling some common stocks.

• Financial assets have more liquidity compared to real assets. Marketability (or liquidity) is the feasibility of converting of the asset into cash quickly and without significantly affecting its price. Most of financial assets are easy to buy or to sell in the financial markets.

• The planned holding period of financial assets can be much shorter than the holding period of most physical assets. Holding period is the time between signing a purchasing order for asset and selling the asset. Investors acquiring physical asset usually plan to hold it for a long period, financial assets can be held, even for some months or even a year. Holding period for investing in financial assets vary very widely and depends on the investor’s goals and investment strategy.

It is very important to understand these different types of investments so you know exactly where to place your hard earned cash.

Differences between Real and Financial Investments
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