What determines value?
Currencies and commodities are usually viewed as trading instruments, though they may occasionally have a place in an investment portfolio. Equities and bonds can be traded or invested in.
Currency investments can be made based on two factors: value and interest rates. If you hold a currency, you will earn interest. If the interest rate increases, you will earn more interest. The value of a currency will also appreciate if the size of an economy increases while the money supply stays constant. Generally, cash is not a good investment, unless a currency appreciates substantially against other currencies, or other asset classes lose value.
Bonds also pay interest, and their value changes when interest rates change. If you buy a bond and interest rates fall, you will make a capital gain and earn interest on the bond. If interest rates fall, you will still earn interest, but the value of the bond will fall.
Commodities gain value when demand increases faster than production can be increased. This can happen when rapid economic growth occurs, and producers can’t increase production quickly enough.
Equities are the asset class most widely held for investment purposes, apart from perhaps real estate. You would invest in listed shares for the same reasons you might invest in an unlisted company. A good equity investment will pay dividends and the value of its assets will appreciate over time.
Value investors look for companies trading at prices that are below their intrinsic value to give them a margin of safety. Growth investors look for companies that will grow their profits which will lead to the company’s value appreciating over time.