Capital Investments – What is Capital Investment?
In the world of finance and business investments, capital investment is the most important financial decision you can make. To invest effectively is to commit money with the hope of a return/profit in the near or distant future. Simply put, to invest properly means to own an asset or an entity with the purpose of creating an economic or personal return on your investment through the appreciation of that asset or property over some period of time or a period of time with the prospect of an even larger return. There are many types of assets and investments that fall into the category of capital investments such as property, safe deposits, accounts receivable, inventory, derivatives (trading items such as interest rates and currencies), short term fixed capital, long term fixed capital, and business assets.
The best way to think about capital investments is to think about large financial investments. For example, the biggest and most common type of fixed assets is money. Money is used for day-to-day needs such as food, shelter, and clothing as well as long term investments such as retirement accounts, mutual funds, and certificates of deposits (rollover money). In fact, one of the biggest categories of fixed assets is the money market. The money market is simply the collection of money that is owned by various institutions such as government banks, commercial banks, credit unions, financial institutions, and insurance companies. Usually, when people talk about large financial investments they are talking about money market funds, interest bearing checking accounts, certificates of deposits, or money markets.
Another way to think about investments is to think about working capital. This type of capital investment refers to anything that is needed to make it possible to pay a customer’s bill or to provide goods and services that can be used in a short period of time to the customer that has provided a credit line. Examples of working capital include inventory, inventories, machinery, furniture, and supplies. Any time an investor thinks about making a large capital investment, they should take stock of their immediate and long-term cash needs. This way they will know exactly the kind of capital investment to make in order to produce maximum results for their bottom line.