Financial Markets, Instruments and Investment Basics , Real vs. Financial Assets

Financial Markets, Instruments and Investment Basics

Chapter: 1 Financial Markets, Instruments and Investment Basics

Section: 2 Real vs. Financial Assets

At the broadest level, investments can be classified into two categories:

I) Investments in Real Assets

Real assets are tangible assets that determine the productive capacity of an economy, that is, the goods and services its members can create. These include land, buildings, machines, and knowledge that can be used to produce goods and services. Other common examples of investments in Real Assets are paintings, antiques, precious metals and stones, classic cars etc.

II) Investments in Financial Assets

Financial Assets, or more commonly known as Securities, include stocks, bonds, unit trusts etc. In essence, financial assets or securities represent legal claim on future financial benefits. These are no more than sheets of paper and do not contribute directly to the productive capacity of the economy. Instead, these financial assets are the means by which individuals hold their claims on real assets and the income generated by these real assets.

While both real and financial assets represent important avenues for investments, in this Tutorial investments in financial assets or securities would primarily be focused on. However, most of the concepts and tools discussed here can also be used for analyzing investments in real assets.

Financial Markets, Instruments and Investment Basics

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