Young Finance Guy: Basic Fundamentals of an Investment

When most people talk about an investment they most commonly are referring to a financial decision to commit financial resources to a current use with the expectation of receiving back the financial resources committed as well as a return or reward in the form of financial resources as profit. Investments are generally thought of as involving money but can involve any sort of resource that is of value.

Fundamentals of an investment:

Investments are measured in terms of risk and return. The higher the risk, the higher the corresponding return. Investments are primarily valued and tracked as a function of time and rate of return. The longer the investment takes to yield a return, the longer the rate of return is applied.

Types of Investments:

Investments come in all shapes and size’s and countless different risk levels. However all investments generally fall into one of two different categories:

Real Investments
Financial Investments

Real Investment

Real Investments involve the commitment of real assets.

Real Assets - These are inputs that can be owned. Do help you understand see the list below of common examples of real assets.

Property such as real estate
Equipment and machines
Labor
knowledge and education
Software
Natural resources like oil

Real Investments are not nearly as liquid able as financial investments. Real investments are used to create real assets that are more valuable then the real investment that were used as inputs.

Financial Investment

Financial Investments involve commitments of financial assets.

Financial Assets - These are claims often contractual claims or paper representing the value of a real asset, ore even the claim on the ownership of a future real asset that may not yet exist. Refer to the list of financial assets below to get a better understanding.