Financial investment is one that aims to acquire rights over certain assets, so that they can generate a potential profit in the future.
In other words, financial investment is the one that consists of buying a financial asset, such as a stock, a bond or a futures contract.
This type of investment can be made by a person or a company, and is the opposite of a real investment, as we will explain in the next section.
The main differences between financial investment and real investment are:
Financial investment corresponds to the acquisition of a right, for example, to the dividends or income that the shares of a company will generate. That is to say, it is not directly linked to a tangible good. On the other hand, a real investment is related to the purchase of a physical asset, such as a machine or a commodity.
Financial investment is more liquid than real, as there is a capital market where it can be easily traded, converting assets into cash benefits. For example, there are financial instruments that in the very short term, even a few days, can be sold and generate profits, as in the currency or foreign exchange market. Instead, getting rid of a real investment takes longer. For example, the sale of a high-value asset such as real estate usually takes a medium term (or even more than a year).
What has been explained in the previous point implies that financial investment normally requires less accumulated savings than real investment, since it does not require funds to be immobilized for a period of time, between purchase and subsequent sale of the acquired asset. For example, there are investment funds in which a long period of permanence is not required, but the investor can recover his capital after a short term.
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Suppose Sofia places some of her capital in a term deposit. This will bring you, within six months, a return of, for example, 7% for keeping your money tied up in the financial institution.
Marcos wants to start investing in the stock market. Then, he contacts a brokerage firm, which will manage a portfolio, in the name and with Marcos’s money. These funds will be invested in shares of different companies, both in sectors that do not involve high risk, such as energy and utilities, as well as in other more risky areas, among which the miner . This, given that Marcos has an average risk aversion.
An investment fund, which manages the capital of different agents, offers a fixed income fund. It invests primarily in bonds, i.e. debt securities issued either by companies or by a government.
