Factors to Consider When Making Investment Decisions

The need to invest is a desire that exists in the heart of every human being. Nobody wants to remain in the same financial position over an extended period. Various forms of investments exist; they range from property investments to savings and fixed deposit accounts. Investing in shares on the stock market is also proving to be a lucrative venture, and many people are trying their luck at it. However, as the world continues to experience a whole range of changes on the social, economic, and cultural fronts, investors are advised to develop sustainable investing goals. Such goals will ensure that businesses align their financial needs to the greater good of humanity and the planet.

Things to consider before making an investment decision

For any business to be successful, an investor must pay homage to certain critical factors. These factors include:

  • Inflation rate-Inflation refers to the progressive escalation of the prices of goods and services. It, therefore, means that for an investment or business to thrive under periods of inflation, it should be able to generate substantial interest to beat inflation. Such a scenario leads to a reduction in the value of money, and without a proper strategy, a business that was once flourishing can easily be brought to its feet as a consequence of inflation.
  • Risk-In the field of finance, the risk is used to refer to the possibility of losing money through unforeseen circumstances. Investments that attract huge profits or interests tend to be riskier. As an investor, it is critical to determine the level of risk that you are willing to face for the purpose of making profits.
  • Return on investment (ROI)-This is the benefit gained by an investor after deductions on the cost of investment are made. Such benefits can be in the form of dividends, interest, or the appreciation of capital.
  • Investment period-This is the probable length of time that an investment will take to yield a return on the investment. Different investments have different investment periods; long-term investments tend to generate higher interest than short-term investments. For an investor seeking to realize higher interest rates, it is always advisable to focus on long-term investment.
  • Taxation/Tax implications-It is a general requirement for all citizens and businesses to remit the tax to their government. An investment will be taxed depending on the nature of its dealings. Therefore, an investor should ensure that issues of income tax implications are factored in to secure a higher net after-tax return.
  • Budget-Budgeting is a critical element of an investment decision-making process; items within a budget must fit within an investor’s existing capital. Every investor should prioritize budgeting for unexpected costs that come in the form of emergencies. Such needs can be met using the surplus money released.
  • Liquidity-Liquidity refers to how easy it is to convert a project or asset into cash. Cash is generally considered a liquid asset because it is easily available and can also be used to buy almost everything. An investor should therefore put emphasis on not only having cash but other liquid assets as well. A perfect example is a savings account that has more liquidity than physical property. Shares in the stock market are also fairly liquid, since they can easily be sold to other traders within the market.

Many people fail to realize the fruits of their investment due to a lack of investment information. Successful investors consider the factors mentioned in this article and make the most of such vital information. As world governing bodies emphasize the need to focus on Sustainable Development Goals (SDGs), investors are called upon to rise to the occasion and be at the forefront in implementing these goals.