Factors to consider when making investment decisions

Saptaswara Chakraborty| North Eastern Hill University| 22nd June 2020

Introduction

Investments can be a tricky terrain with various options being available. However, the only available options are either that of a loaner or an owner. In the process of a loaner, it is someone who allows the other to borrow their money in exchange for interest. Whereas an owner, on the other hand, invests in someone else’s business with a sure hope that their ownership interests grow in value. Different forms of investments are available with some being in stocks or even loans, and because of this, investments can become tricky.

When a person puts their money in banks, or any bonds, at that time, such a person becomes a loaner, whereas when such a person invests in the stock market or a real estate, then such a person becomes an owner. These two above mentioned are the two ways of how an investment is usually made. However, when we compare loaner investments like government bonds, it can be seen that it has paid instead of a much lesser inflation rate. Owner investments like stocks have instead paid for much more, therefore, beating inflation. In this article, we shall be dealing with the various aspects that one must remember before investing in any.

Things to be kept in mind while undergoing any financial investments

As has been mentioned before, there are a number of investments options available- commercial alternatives, real estate, stocks, bonds, high-risks and many more. Thus this results in making decisions challenging to figure out as to which decisions should be trusted. Following are some of the things that one must consider while undergoing any financial investments:

• Drawing a personal map– Firstly, it is essential to understand one’s current financial situation carefully after which one needs to understand the risk-tolerance that he/she can achieve. The second important thing that one must consider is that of the investor’s age because an investor who has attained the age of retirement, cannot be allowed to invest as it would be unsuitable for him.
• Identifying the investment objective– While undergoing any such investments, one has to think whether or not he/she wants the money to grow fast and that taking risks is not an essential factor. Similarly, the understanding of whether one would want to preserve the capital in the safest way possible or whether one would not want to lose its values. These questions or understanding helps the person to utilize the investment opportunities better as such would help them to be sure about what kind of an investment product is adequate
• Evaluating one’s comfort zone– Often it has been found that if one has a financial goal within a long term horizon, it is more likely to make more money by carefully investing in asset categories with much higher risks, like stocks, bonds, rather than making money or restricting the investment only to assets with less risk, like cash equivalents. Investing solely in cash investments may be appropriate for short term financial goals.
• Understanding the correct investments that are required– It has been found that the three major asset categories that are the stocks, bonds and cash- have not moved up and down at the same time. Market conditions that help one asset to do well can often make the other category to have average or poor returns. If one invests money in more than one asset category, then the chances of risks of losing money get reduced, thus leading to the portfolio’s overall investment return. When one asset category’s investment return falls, there would still be a possibility and a position to counteract the losses incurred in that asset category with a much better investment return in another asset category.
• Maintaining an emergency fund– This has to be one of the critical steps required while considering any financial investments. Most of the smart investors would put enough money in savings so that they know that it would be there for them when they would require.
•  Avoiding circumstances that can lead to fraud– Many at times, investors may be scammed by potential malicious users. They may lure the investors and make the “ opportunity” sound more legitimate. Such situations have the possibility of happening during times of economic crisis. The ideal thing to do during such a situation is to ask questions and then to check out such answer with an unbiased source before investing in it. 

Suggestions regarding financial investments

While investing or making any financial investment following are some of the necessary things that are required to be taken care of :

• Firstly, invest only when there is a considerable amount of time in hand. It is advisable to not put money onto stocks that would be required in the next five years. The more time one takes, the lower will be the chances of the risks.
• Mutual funds are a very efficient way of investing when one is short of money and cannot buy more than one stock.
• Do not invest in stalks all at once. Invest at a small proportion so that if ever the market falls, one can have money available

Remarks

Many people sometimes would invest not knowing what would be best for them—hence resulting in several financial problems along with losses. One has to be clear in his/her strategy and know what he/she would want from such kind of future investments.