Greetings to all....!
Hope you all are doing good.
Entering into the topic of investment itself is quite enchanting. As the word enchanting, the investment processes will always be magical to beginners or newcomers to this field.
Investors play a vital role in the growth and popularity of a brand. Various businesses, startups, TV shows, advertisements, public events like marathon or any special sports events, app development, banks, companies of different sectors, stock markets, etc., operates with one or more investor for the execution of their work progresses.
By investing in something, the investors look forward to taking home more than their contribution sum, to widen their financial growth.
For the investors to make an investment, there are some serious considerations taken into account, which can influence the decision of the investment.
Some of the factors which influence the idea of investments are as follows :
- Aspects of Risk
- Economic risk
- Interest rate risk
- Reputation risk
- Market risk
- Liquidity risk
- Inflation risk
- Horizon risk
- Aspect of Uniformity
- Quality of returns
- Dependence on Research
- Motives behind Investment
- Exposure and Practices of Investors.
Let us discuss each and every aspect clearly.
Aspects of Risk :
An important factor that comes to mind for anyone before commencing a work irrespective of the field, is the depth of the risk which they have to take.
Given below are some of the risk factors that an investor will consider before initiating an investment.
Economic Risk :
Economic risk is mainly dependent on the market conditions and the economic growth of the respective region. Suppose the economic growth falls behind and slowly descends, out of the blue loss occurs which leads to a sudden loss of revenue or returns.
The returns will depend on the status of the economic growth of the respective region. If the growth is high, then the returns will be high as well. If the growth falls, the rate of the returns falls too. The investors first see through these economic statuses and then decide on the proceedings.
Interest Rate Risk :
The interest rates and the bond value are inversely proportional to each other. That is, when the rate of interest rises, the value of the purchased bonds falls. On the other hand, when the interest rate falls, it happens to be the other way around.
Reputation Risk :
It is very important for a business establishment or any company to have a good portfolio. A good reputation helps one to have a good customer base.
Having bad or negative publicity even if it is a false alledgement, will be sure to create a great negative impact on the customer base leading to a shrink in the customer base and some other financial crisis.
Market Risk :
We can try to eradicate other risks but the market risk is one, which cannot be eradicated. It depends on the execution of the financial markets.
So in market risks, we can only avoid the risk and we can't fully exclude it.
If the down market prevails, the prices or values will fall in accordance with the market, and so has a negative impact on the investor.
If an up market or booming market is on the run, the market value will also be high, which attracts more investors.
Liquidity Risk :
It is the state of being incapable of selling your investments at a desired price and not getting your returns out whenever the time you want to.
In order to trade your investment, you may have to accept even at a very low price. In few cases, it is not even possible to sell the investment at all, due to the reduced cash flow.
Inflation Risk :
A sudden rapid rise in the costs of goods and services without getting an appraisal is called inflation.
When inflation exists, we can't purchase the same amount of goods or avail the services as in the old times. It decreases the buying capability of the money.
Real estate, shares, and treasury bonds are some defense against inflation. Because the owners of these can increase their prices, they can meet up with the inflation.
If the income prices are not increased, the profitable sum amount would not be a proper profit.
Horizon Risk :
A time horizon indicates the period of time an investor plans to hold on to. It can be a long-term investment plan or a short-term investment plan.
Investors with long-term plans tend to invest in savings like retirement and investors with short-term plans opt to invest in some short-term return plans.
Your investment horizon may be forcefully changed due to an unexpected event, forcing you to sell your investments which you thought to hold up for a long term.
Due to this risk, you may lose money if you have to sell your shares during a down market.
Aspect of Uniformity :
Performance is the most important factor. A good and steady performance is the key element to obtain a better and steady return as an output.
If the to-be-invested market falls behind, we cannot expect any good returns. So, it is way more important for the market's performance to be steady to be good in the eyes of the investors.
Quality of returns :
If the returns are assured at a high rate suddenly, it raises doubts on the investor's side.
Investors would prefer a safe and secured, good amount of returns but it should be in a steady manner. They would rather like the quality and regularity of the returns.
Dependence on Research :
It is a good practice to always research prior to the investment. An investor usually runs a deep research on the desired field before investing in it.
Different people have different needs and due to this, their demands also differ from each other. An investor doesn't have any benefit if he invests in something that doesn't give security.
Be sure to make your work more pleasing and demanding, which will have a great priority on the investor's mind.
Motives behind Investment :
Each investor will have specific intentions when they plan to invest in anything. Their preferences may change according to their requirements.
Some investors tend to invest in the short term while others may go for long-term investment.
The investor's desire may cover any of the following reasons such as profit gains, acquiring a new home for their family, securing money for educational purposes, increasing their assets, saving for their retirement, for ceremonies like marriages, or just to multiply their wealth.
Hence, their investment preferences depend on any of the above-mentioned points.
Exposure and Practices of Investors :
Exposure is one of the main details that directs the investors into any investments. As beginners, investors may tend to choose easy investment plans or even sometimes opt for advice from experts.
Meanwhile, professional or proficient investors through many practices will have a great knowledge about many complicated procedures or schemes and they will have the courage to take in any risky situations.
Because they know how to handle it through their experience.
Closing Thoughts :
The important factors about the investor's choices have been discussed clearly. These are the main factors that can influence the investors and yet they may change in accordance with the emotional state of the investor.
Make good choices today...