12 Jul Factors That Affect Investing In 2022
Investing is the act of allocating resources, generally money, into assets with the expectation of earning profits. Kinds of investments vary from savings accounts and fixed-term deposits to property and shares on the stock market.
People opt for investments as per their personal needs, goals, and interests. There are factors that should be considered before making investment decisions. These guarantee that your money is put to its best use, and that it capitulates the best returns with a minimal probability of incurring a loss.
Return on Investment (ROI)
Return on investment is the profit that the investor gains post deducting the cost of the investment.
- It can be in the figure of interest, dividends, or capital appreciation (a boost in the value of assets).
- The return on investment must be articulated as the net after-tax income.
- The net after-tax return must be higher than the inflation rate.There is generally a direct link between risk and return on investment.
In finance, risk implies the likelihood of losing money owing to unanticipated circumstances.
- The elevated the potential return, the higher the probable risk of losing money.
- For instance, investing in shares has a superior risk than investing in a fixed deposit, but it, in addition, promises higher returns.
Investment Period / Investment Term
The Investment period is the period (length of time) of the investment, which can impact the return on investment.
- The investment could be short, medium, or long term.
- Long-term investments should be held for more than a year, whilst short-term investments are held for one year or less.
- Long-term investments usually yield higher returns than short-term investments.
- The investment period relies on the personal requirements of the investor.
Cash is deemed a liquid asset because it can be effortlessly accessed and used to buy approximately anything. Liquidity, consequently, refers to how rapidly and simply an investment can be changed to cash.
- In case of emergencies, there must be an amount of capital assigned to an investment that can be effortlessly converted to cash.
- A savings account is more liquid able than a property as it is easier to convert to cash, whilst the property takes time to sell.
- Many shares on the stock market are deemed fairly liquid because they can be effortlessly sold to other traders in the market.
Taxation / Tax Implications
Tax is an obligatory fee that citizens should pay to the government.
- Different investments contain different tax rates.
- The investor should deem income tax implications to secure a high net after-tax return.
- A good investment should generate a good after-tax income.
Inflation is the incessant rise in the prices of all-purpose goods and services, which leads to a reduction in the value of money. The inflation rate is a percentage that is computed yearly to calculate the rise of the average price of goods and services in the economy.
- When the inflation rate increases, the purchasing power of consumers reduces.
- A good investment must have a return on investment that is superior to the inflation rate.
- Some investments for instance property and shares are positively affected by inflation. Their value can enlarge as inflation rises.
The investor’s budget implies the amount of capital that the investor possesses.
- Investors should budget for unanticipated costs.
- The budget must provide for emergencies, savings, and investments.
- Investors can choose how much of their surplus money can go to investments.
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