Real investment definition – What Is a Real Investment
What do you think about a real investment? There is no need to type “real investment definition” in Google Search. We are here to help you.
So, what is a real investment?
A real investment is a money that is invested in tangible as well as productive assets such as machinery, as opposed to investment in securities or other financial instruments.
Unsurprisingly, real assets are appealing to investors as real assets provide good returns, among other benefits. It is easier to create a well-diversified portfolio, thanks to real assets.
As a reminder, it is possible to divide assets into various assets. For example, real, financial, etc. Let’s start with financial assets.
They are liquid assets that hold value through ownership rights in a paid-up capital of any company. It is no secret that intangible assets don’t have a physical form like patents, brands, etc.
Do you know what cash, stocks, and bank deposits have in common? All of them are financial assets. The vast majority of companies own both tangible as well as financial assets.
A company, Mazda or Honda, for example, may own a factory. Nevertheless, the above-mentioned factory may also own tangible assets. For example, trademarks and patents. It is worth noting that the above-mentioned company may have investments in its subsidiaries, termed financial assets.
Interestingly, real assets are more stable but less liquid compared to financial assets.
What do you need to know about real investment?
As stated above, you don’t have to use Google Search in order to search for the “real investment definition.” It is desirable to remember that real investment is money that is invested in tangible as well as productive assets, not similar to investment in securities or other financial instruments.
Do you know why investors like real assets so much? Let’s find out!
It is no secret that companies have to deal with numerous problems on a daily basis. Companies are trying to adapt to the ever-changing environment. It is a good idea to own real assets. Why?
To minimize the impact of various factors such as inflation, etc.
Let’s get back to financial assets for a minute. They are highly liquid assets that are either in cash or can be converted into cash in no time at all. What comes to your mind when you hear about financial assets? For example, bonds and stocks.
Now, let’s get back to real assets. It is worth noting that real assets are value-driven physical assets owned by a company, such as land, factory, etc. Do you know what makes real assets so interesting?
Real assets have intrinsic value by themselves. So, real assets don’t rely on exchanges to have value.
Advantages and disadvantages of real assets
Let’s start with the advantages of real assets. First of all, real assets are more stable compared to financial assets.
Moreover, real assets aren’t dependent on financial asset vulnerability. It makes sense to invest in real assets if you want to reduce risk and create a well-diversified portfolio.
What about inflation? It is a serious challenge for all companies. In order to minimize the impact of inflation, it makes sense to invest in real assets.
Unsurprisingly, real assets also have their disadvantages. For example, real assets have higher maintenance costs than other forms of assets.
Furthermore, not everyone can buy a piece of industrial machinery or a factory.
To sum up, the purpose of the article is to help you learn more about real investment. Now, you know what to answer if someone asks you to explain the “real investment definition.”