Financial Investments

Financial investments refer to any of a group of assets that are used to earn income or to provide for family needs. These include both tangible and intangible assets such as money, financial securities, bank accounts, and other instruments. There are two main types of financial investments: common equity and preferred stock. Common equity is created by issuing shares of the corporation (common stock) in return for payments based on dividends; preferred stocks are created through a similar process but with first issue notes rather than stock shares.

A typical portfolio will contain a mixture of fixed and variable interest rates, stocks, and bonds. A basic portfolio would probably consist of money, stocks (in the form of bonds), commercial paper, and fixed interest bank accounts. A more complex portfolio will have more of one type of financial investment, such as bonds, stocks, commodities (such as sugar, oil, gold, and other precious metals), and sometimes both. If an investor desires to diversify his or her portfolio, common equity and preferred stocks can be combined into one portfolio called a fund. Funds are designed to provide consistent growth through a systematic process. A good example of such a fund is the mutual funds industry.

Any financial investments should be monitored and evaluated on a regular basis. The cost of such evaluations can be substantial if a company is not profitable, the market is far from ideal, or the company is insolvent. Monitoring and evaluating the risks associated with any security will help maximize the return of capital that can be achieved with a particular investment and/or enhance the viability of the remaining assets like stocks and bonds.

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