In my opinion, there are two main types of domain investments and it all depends on how you want to make money:

1) asset appreciation (for example, you invest in a domain and you’ll only make money after selling it to another party)

2) income generation (for example, you buy a domain based on its traffic/revenue and will make your money back after a certain period, everything after that aside from the renewal fee is profit)

Of course, a domain investment can be a combination between the two and each category has its particularities.

Domains from category #1 usually have a higher inherent value than those from category #2. The main implication is that if the traffic stops for the category #2 domain, your chances of selling it at a profit or even breaking even will be quite low, so that’s a disadvantage.

The disadvantage of category #1 domains is that you don’t make money until you sell them. I mean ok, some of them might have some traffic/revenue but as a percentage of the amount you paid for it, that number will usually be small.

It’s all a matter of finding the right balance.

If domain values rise, your category #1 domains will end up being more profitable.

If domain values drop, your category #2 domains would prove to be a better choice.

Again, there’s no “one size fits all” approach.

And sure, a lot of people have amazing domains that also generate very good returns via parking but the chances of being able to buy an amazing domain at a great revenue multiple in 2013 and beyond are slim 🙂