It is important to make investments that help fulfil your financial goals and ensure that you have a stable and secure future, but be aware that this is not always an easy process. There are several factors you need to consider that can influence your decisions.
It is crucial that you make the right choice, and the right investments for you. Although there are several financial instruments that can help you build a corpus, not all of them may be suitable for you. It is important for you to know which investment format is good for you, and which ones best fit your financial needs.
Let us take a look at a few such factors that you must consider while making an investment decision.
Reason of investment
The first, and most important thing to consider is the reason for making an investment. While it is true that investments are the key to a financially successful future, it is also important to understand that not all investment vehicles are the same. Each investment objective has it’s own pros and cons and a different objective. You must have a clear objective for your investments and then arrive at the right investment choice for you.
In simple terms, if you are looking for a short term goal, the investment modes would be different than the financial instruments which cater to long term goals. Knowing your investment reason, and fixing on a goal gives you clarity on which investment vehicle is right for you.
Researching the market
Making an investment is an important decision, one which can alter your future significantly. Therefore, it is always advisable to conduct thorough market research before you make an investment decision. Doing this will help you understand the current market and give you an idea of the companies you should invest in.
Knowing your investment goal and the type of investment you want to make, along with having a good understanding of the market, will enable you to make investment decisions that are best suited for you and help you succeed.
Risk levels
Nearly all investment vehicles carry with them some kind of risk. Therefore, it is important to understand the risk associated with the investment before you get involved. Your risk appetite should dictate your investments to help you make the most of your investments. If you want to ensure that your principal investment remains safe, go for lower risk investments, though the returns on those may not be high. If you’re looking for high returns and do not mind taking a few risks, then your investments will look a little different.
Investment Tenure
Your financial goals must have a time limit, which implies that the investments you make also have a specific tenure. The longer you make investments into one instrument, the higher corpus you are able to build for yourself. You also have a higher chance of earning a profit if the investment tenure is long term. However, not all investments provide a guarantee of positive returns.
Depending on your financial goal, and the reason for investment, you should decide upon the duration for your investment.
Taxations
Before you make investment decisions, it is important to consider the taxation rules, and potential tax implications that may arise in the future. The reason is that different investments cause different taxation levels, which can affect your investment returns. It is imperative to understand the taxation laws and regulations before arriving at your investment. Understanding tax laws help you make sound investment decisions, which can help protect your financial future.
Liquidity
When making an investment decision, you should consider that you may have to liquidate that investment to meet other unforeseen needs. You should also consider the appreciation of value for your investment in the long run. If your chosen investment has long term potential and has high liquidity, as an investor, you can take advantage of the price movements in the market, and easily sell the investment if you wish.
Volatility
Volatility can be defined as the measure of how much the price of your asset can fluctuate over time. This can be a key influencer in your financial decisions, and is one of the most important factors to consider. Depending on your risk appetite, you should consider the volatility of your investment. This can highly influence your investment decisions, based on your investment objectives.
For example, if you are investing for the purpose of a retirement plan, you are likely to invest in an instrument that has consistent returns with low volatility.
The Company
Before you invest in a company, it is imperative that you conduct a full research about the company, its operations, finances, and market projections. This gives you an idea of whether it is a good idea to invest in the company, and whether you see your financial goals get fulfilled by making the investment.
Return on Investment
The ROI, or Return on Investment is one of the key determinants to consider when making investment decisions. The entire point of making an investment is to generate returns and garner profits. Therefore, you must always consider your ROI when making financial decisions. An ROI can help you measure the profitability of your investment in relation to the principal amount. In case you decide that your investment is not generating enough ROI, you can stop investing in that instrument, and look for better options.
Rate of Inflation
Inflation is real, and it is something that is beyond your control. Therefore, it is a crucial factor that you must consider when making investment decisions. Over time, inflation can kill your savings, and erode your investment value. You should consider the effects of inflation on your investments before you make them.
We hope a better understanding of the factors you should consider before you make an investment decision will help you make sound choices and have a successful financial future. However, nearly all investments are subject to market risks, and you should always consult your financial advisor before you make a decision on investments.
