An investment company is a company that invests in other companies, projects, properties, or stocks and bonds.
An investment company is often structured as a trust or a corporation, and specialises in investing capital in various financial ventures such as stocks and bonds.
Investment companies make these investments with the expectation that they will generate future return on investments.
Expertise and capital
Investment companies often have in-depth knowledge of the market they operate in, which allows them to make informed decisions about where and how to invest.
What does an investment company invest in?
Typically, an investment company diversifies its portfolio by investing in a variety of companies and markets. This strategy aims to spread risk across different industries and assets, which limits the impact of poor performance in any single investment.
However, there are investment companies that invest in a single market, such as real estate.
Long-term and short-term investments
An investment company can have both long-term investments and short-term investments. Short-term investments can be, for example, buying and selling stocks over a short time period; Buying when the stock is low, and selling when it is high. The profit they generate from this makes it possible to invest in more stocks or in other projects.
A long-term investment is an investment that a company expects to give profit over time, for example shares in a company, or real estate that can be rented out. Investment companies can withdraw dividends from the profits or reinvest them.
Holding companies
A common type of investment company is a holding company, which is a type of business that’s set up to own shares in other companies. Holding companies usually don’t produce goods or services; instead, their value lies in the ownership and management of shares in subsidiary companies.
The benefit of setting up a holding company is that each company’s assets are shielded from each other. This means that if a subsidiary company goes bankrupt, the holding company is not liable for that debt, and its assets cannot be sold to cover that debt.