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Different Types Of Investments

jaschmidt | Dec 16, 2009 |

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Companies or individuals may have idle funds that could earn greater values instead of being used to open a business or remain intact in a savings account. For this purpose, we will try to look into the different types of investments which you may take interest in instead of risking it as a capital investment for a new business. These are often preferred by individuals who would rather realize return on investments without being burdened by the complexities of running a business company. The different types of investments are classified into two, namely; temporary and permanent investments.

Different Types of Temporary Investments

Temporary investments are also called short-term investments. Funds invested in the different types of investments of temporary ventures are excess money held unused by the business when the normal business operations are affected by slack or slump in market activities. In order to be classified as temporary investments they must be readily marketable and converted into cash when needed. Readily marketable means that any of the different types of investments under this category are not restricted by maturity dates or holding periods and can be realized as cash, onc they are up for sale on the trading floor.

On the other hand, when the different types of investments classified as temporary result to majority ownership hence gaining control of a company as a business advantage, they cannot be classified as such. In some cases, different types of investments can still qualify as temporary investments even if they are held for a long period of time, albeit limited, if the intention of the business is to sell them for working capital purposes.

Permanent Investments

Permanent investments are also known as long-term ventures. There are different types of investments under this classification, the most common types being the investments in shares of stocks and equity ownership in a corporation, bond investments, investments in subsidiary company stocks; investments made in joint ventures and partnerships; purchase of land with anticipation of appreciation in value; and cash surrender value coming from life insurance policies;

Other different types of investments which are more specialized are: Long-term advances made to affiliates or subsidiaries; funds invested for noncurrent purposes like contingency, insurance, replacement, plant expansion, preferred stock redemption and sinking fund.

Different Types of investments in Shares of Stocks and Equity Ownership in a Corporation, Investment in Subsidiary Company Stocks; Investments Made in Joint Ventures and Partnerships

These different types of investments all relate to the infusion of money in a particular company in exchange for their shares of stocks. A stockholder gains partial ownership which gives the privilege of voting for or against any major decisions that the Board of Directors will implement. In some ways, this privilege grants control and protection on how the investment in the company or joint venture partnership is being handled. Income earned from these different types of investments are called dividends.

You can find information about dividend declaration for the year in the company's Balance Sheet under the Stockholders' Equity portion, as an item that reduces the company's Retained Earnings account.

Bond Investments

In this type of investment, the money infused in a company in order to finance business expansion is considered as loans granted to a company rather than shares of ownership. This is solicited by the company through issuances of bond certificates with prior approval of the company's stockholders. The certificate contains the acknowledgement of the debt as well as the interest payments due to the bond investors. There are also different types of bonds as they come in different types of investments.

All interests shall be paid until the principal sum of the investment can be returned on its maturity date or rolled over if applicable. The bond investor does not earn any voting privileges in the company's major decisions since he is classified as a creditor instead of an equity stockholder.

Purchase of Land with Anticipation of Appreciation in Value

This type of investment is more concerned with the physical aspects of the property hence your financial advisors should be guided by additional skills regarding geographical and geodetic values. The financial aspect though will deal with the market and economic trends in the area as well as its growth potential based on the land's quality, demography and location.

Cash Surrender Value Coming from Life Insurance Policies

Forming part of the different types of investments are the life insurance policies you take out and pay monthly premiums for. If you wish to terminate the policy by not renewing it upon maturity and before any of the life-impairing conditions covered by the policy occur, an equivalent cash surrender value will be given to you in exchange for the premiums you paid for during the period that the life insurance policy was held.

In general, different types of investments are those assets that are not the direct sources of income in the major business operations.