Benefits of Investing in a Capital-Intensive Industry

A capital-intensive industry is one that requires a very large initial investment from a company. Investing in this type of industry can provide you with several advantages. Here are a few of the benefits of investing in a capital-intensive industry.

High Rate of Success

When you invest in a capital-intensive industry, you are investing in an industry that has a very good chance of being successful. Companies that choose to get involved in a capital-intensive industry do an astounding amount of research before getting involved. The industries that these companies get into are typically industries that everyone needs in one way or another. For example, the oil industry is a capital-intensive industry. Oil companies know that they are going to make a substantial profit in exchange for investing heavily in their infrastructure. Most of the time, a company that has enough resources to get involved in a capital-intensive industry is not going to invest that much money in a potentially losing proposition. These industries tend to be as close to a "sure thing" as you can get. Therefore, by investing in these industries, there is a very good chance that you will be able to make a nice return on your investment.

Low Competition

Another advantage of investing in a capital-intensive industry is the relatively low competition. In most capital-intensive industries, there are just a few main players. Therefore, you do not have to worry about choosing the wrong company within the industry. New companies rarely get involved in capital-intensive industries because of the extremely large barriers to entry. This means that the companies that are already involved will typically have the entire market for the foreseeable future. You really do not have to worry about another company coming in and gaining market share away from the company that you have invested in. In other industries, this is not the case.

Low Risk of Losing Your Investment

When you invest in a capital-intensive industry, you are choosing an investment that poses a very low risk of losing your money. Companies within capital-intensive industries have invested a substantial amount into their infrastructure. Therefore, they have a lot of assets on hand. This means that there is a very low likelihood of the company ever going bankrupt. If times are bad, they could simply cut back on certain parts of their business and sell assets in order to survive.

If you purchased bonds from this company, the risk of losing your investment is extremely low. If you own a bond in a company, you are technically considered a creditor. Therefore, even if the company were to go bankrupt, their assets would be used to pay their creditors. Since these companies have a large number of assets, there is a strong chance that you would be able to get your initial investment back.

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