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What is an Independent Investment?

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  • Written By: Osmand Vitez
  • Edited By: Kristen Osborne
  • Last Modified Date: 01 December 2016
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    2003-2016
    Conjecture Corporation
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An independent investment represents capital that individuals or businesses invest into companies. Independent investments are not related to any other investments in a company. Individuals usually invest capital by purchasing the company’s stock or bonds. Businesses can make an independent investment multiple ways. In addition to purchasing a company’s stock or bonds, businesses can also make a direct investment into the company. Investments may be purchased through a private investment firm or securities brokerage house.

Individuals and businesses often make independent investments for a variety of reasons. Individuals make investments to generate future retirement income, passive income streams through dividend payments or a fixed rate of return through corporate bonds. An independent investment can be short or long term. Long-term investments tend to carry more risk since investors leave their capital in the investment for an extended period of time. Short-term investments may offer lower returns. However, individuals and businesses will receive their money and financial return quicker than other investments.

Businesses make independent investments for several reasons. In addition to generating passive income streams through dividends and earning a fixed yield on corporate bonds, businesses make investments to create strategic relationships with other companies. Strategic relationships ensure businesses companies have sufficient supply of economic resources to produce consumer goods or services. Business relationships can also involve a companies’ supply chain. A supply chain is the way manufacturing or production companies get products into consumers’ hands.

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Independent investments may also create subsidiary relationships between companies. Companies making less than a 25 percent direct investment into another business are often said to have a non-controlling interest. Investments between 26 and 49 percent often lead to a controlling relationship where a company can make management decisions for the subsidiary business. Direct independent investments of 50 percent or greater usually creates an ownership stake in the business relationship. Parent companies are usually responsible for reporting the subsidiary company’s information in a consolidated financial statement format.

Individuals often make multiple independent investments in order to diversify risk. Risk diversification ensures individuals that a single investment cannot sink their investment portfolio. An independent investment can represent significant amounts of risk for individuals and businesses. Investment risk may be limited through the use of diversification. Diversification allows individuals and businesses to make several different types of investments to avoid high levels of risk.

An independent investment can also be made in a different business industry or a foreign economic environment. Foreign investments allow individuals and businesses to benefit from surging or developing international markets. International investing is a traditional way for diversifying investments.

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