Domain names are hot commodities in today's tech-centric world. The $16 million sale of 'insure.com' to Quinstreet in 2009 may have set the world record, but even lengthier domain names are routinely sold for hundreds of dollars every day. The result is a unique opportunity for investors to invest in domain names that can be sold for a profit in the future.

Building a Solid Domain Portfolio
Building a high-quality domain portfolio can take months or years to accomplish. Often, the key is looking forward to what domains may become popular in the future and hedging through numbers by purchasing hundreds of domains. Others choose to purchase a few already high profile domains and sit on them hoping that they appreciate in value.

Generic Names
Words that describe a product or service, including new and emerging products, can be a great investment. But it's very important to avoid any copyright or trademark issues that could result in domain forfeiture.

Geographic Names
Names of cities or countries, including up-and-coming locations, can be great investments over time that can be sold to web developers looking to build out community portals or other businesses centered on those communities.

Business Names
Generic business names, such as dentist or chiropractor, can be great investments when combined with geographic names.

Timely Names
Timely names can be great investments when combined with events occurring in that year, such as 2022OlympicPlayers.com.

Buying and Selling Domain Names
There are many different ways to buy and sell domain names. Many standard domain registrars, such as GoDaddy.com, will facilitate sales via auction. Meanwhile, specialized websites, such as Sedo, are designed exclusively to buy and sell domain names. Finally, parking domains with a for sale page is a great way to draw targeted interest from potential buyers.

Set Price
Setting a specific price is the preferred method for domain sellers that have a large portfolio of domains and aren't in a rush to sell them.

Auction
Auctions are a great way to sell higher profile domain names where there is a lot of interest, since they typically result in the highest possible price.

Make an Offer
Make an offer sales are well-suited for niche domains that may not have a lot of interest and/or where the exact value of the domain isn't well known.

Risks of Investing in Domains
There are many risks that would-be domain investors should carefully consider before buying and selling. The three largest risks are liquidity, subjectivity and legality, but there are also many other ranging from misleading appraisals to faulty escrow payments. Would-be buyers should carefully consider these risks before investing in domain names.

Liquidity
Most stocks and bonds can be bought and sold with ease through a broker, but domain names can be much harder to sell. Finding the right buyer is often a matter of listing a sale for several months or even years, which means that investors should have a lengthy time horizon and the ability to stomach a loss.

Subjectivity
Stocks can be valued by the discounted value of future cash flows, while bonds can be valued by their coupon payments and interest rates. Domains are a much more subjective valuation that can be very difficult to pinpoint. And so-called domain appraisers are well known for issuing lofty valuations that can be hard to realize.

Legality
Domain names can be a sticky business from a legal standpoint. Choosing names that are too close to a trademarked name can result in a lawsuit and a court order to forfeit the domain name for free. In other cases, stolen domain names can be sold before the buyer has the ability to discover that they're not the true owner.

The Bottom Line
Like any investment, domain names come with their own set of risks. However, for diligent investors who consider the risks and returns thoroughly, domain names can become an investment that yields high returns, and a unique way to diversify his/her portfolio of investments.

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Reference: http://www.investopedia.com