difference between economic investments and financial investments?

Investing is a very important word, since it is handled worldwide by small, medium and large entrepreneurs around the world. In addition, being clear about financial concepts allows the person to know and understand the movements that are made commercially. So in this article we will explain what an investment is and what the differences are between economic and financial investment.

What is the Difference Between Economic Investments and Financial Investments?

What is an investment?

An investment consists of an activity to allocate money to a company or company with the goal of obtaining a profit of any kind. In the economic area, resources are identified as associated costs, among the resources that can be mentioned are land, capital and labor.

On the other hand, when an investment is carried out it is supported by an opportunity cost , and it is important to bear in mind that an investment is also a risk. That is why it is always advisable to have capital to support said investment, that is, you must have savings to cover expenses.

Investment types

  • Short term: Covers approximately one year.
  • Medium term: It takes 1 and 3 years to carry it out.
  • Long term: Three years minimum.

Now we explain in detail what an economic and financial investment is and finally the difference between the two investments.

What is an economic investment?

Economic investment is one whose funds are closely related to a personal economic activity , and which does not include a large company. Which means that they are mostly independent, and that they have sales strategies and direct connection with machinery, equipment and infrastructure.

In summary, economic investment is one in which it is invested to acquire a benefit, such as producing money, that exceeds the initial expense.

What is a financial investment?

Financial investment is one that implies any financial instrument or service, said purpose depends on the movements of the stock market. Financial investment involves purchases of stocks, investment funds, bonds and everything that is related to the stock market.

In this order of ideas, we can summarize that economic investment depends on the savings or capital that a person has, and financial investment depends on the market stock.

Difference between economic and financial investment?

  1. The economic investments require more attention, as they require to have an intermediary or an important marketing development.
  2. An inexpensive investment provides greater flexibility in terms of the actions invested.
  3. Financial investment is limited to having a margin of shares according to the market exchange.
  4. The investments will allow work on other activities taking time off to run other business marketing.
  5. To have a faster profit you can count on the financial investment, since the economic investment usually takes time, due to waiting for the profits.

As you could read, the disadvantages and advantages that each one has are presented, of course, some cases may be different, it all depends on the established planning.

What variables exist in investments?

In the business world, variables are established that must be taken into account, these are the important factors: performance, liquidity, term and risk.

  • Performance: The return on the profit that we tend to obtain in exchange for the investment made, this is measured when profitability or profit is analyzed.
  • Liquidity:  It is the ability to change a certain investment into money with minimal losses regarding its value.
  • Short or long terms: Time is an important variable, since we depend a lot on the term that the investment made tends to last. In this part we usually think about whether it is worth making this investment, whether to obtain it now or in the future.
  • Risk:  It is normal for there to be some indecision before making an investment, but this should not be a weakness. Although it is true that there is no 100% security, this motivates us to think about the pros and cons of an investment.

So far we have seen that it is an economic and financial investment, and with the help of an accountant you will be able to better manage this area.

We hope that this article clears your doubts and you can make investments safely and effectively , thus you will achieve your personal goals.


by Abdullah Sam
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