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Investing Glossary

Debt Investment

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Debt investment is an investment made in a firm or project through the purchase of a large quantity of debt, with the expectation of being paid back plus interest. There are debt investments that include private investors such as financers for debt products, as well as the more commonly offered debt investments by banks and lenders. Debt investments can be made on collections of corporate or private debts and include various kinds of debts. Debt investing is often thought of as fixed income because borrowers are legally required to pay back a specified amount at predetermined intervals. There are two primary options at the core of all investments: debt instruments and equities. Equities are the things that you can own, such as stock or real estate. Debt instruments are things that you are expecting, but cannot actually produce at any given time, such as a bank certificate of deposit or municipal bond. Rather than investing through acquisition of ownership in a firm or project, debt investors seek to profit from financing costs accepted by individuals and businesses willing to pay financing fees to obtain immediate access to cash. Common debt investments include bonds, tax liens, real estate contracts, car loan notes, and owner-financed mortgages. A pawn shop is also labeled a debt investment as is any investment set up with a promise of future cash flow in exchange for a purchase of a debt instrument in the current market. During strong periods in real estate, private investment groups are often popular. These are privately funded mortgage investment groups that typically fund more risky loans for real estate developers and home buyers in exchange for liens against the property. Investing in debt is quite different from buying CDs or investing in stocks. Debt investors are often much more active than stock investors and have to carefully study and learn about the debt instruments they invest in.

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