There are a variety of ways you can invest your money, but what’s the right move for you? People choose investments according to several factors, such as personal needs, goals, and interests. These are factors that need to be considered beforehand so your money is put to its best use and yields the best returns with minimal loss. So, what are the things you should think about before deciding to invest? Here are nine factors to consider.
1. Investment planning
Before you begin your investment journey, it’s important to establish your goals and objectives. Planning your investment strategy will help maximize your potential for returns while limiting your risk for losses. This can be done with one of our CPAs, so you begin in the right direction.
2. Return on investment (ROI)
ROI is the benefit you gain after deducting the cost of the investment. It can be in a variety of forms, such as interest, dividends, or capital appreciation.
3. Risk tolerance – what are you comfortable risking?
This refers to the possibility of losing money due to unforeseen circumstances. The higher the potential return, the higher the risk of losing money. For example, investing in stocks has a higher risk than investing in fixed income investments, but it can deliver a higher return.
4. Investment period
Depending on your personal needs, you can choose short-, medium- or long-term investments. Generally, long-term investments yield higher returns rather than short-term investments.
Cash is considered a liquid asset because it can be easily accessed. Liquidity refers to how quickly and easily an investment can be converted to cash. If you need quick access to your investments for withdrawal purposes, this would be a factor to consider.
6. Tax rates on your investments
Yes, even investments are taxed. Different investment vehicles have different tax rates, so you should consider the tax implications before investing. It’s important to remember that a good investment must produce a good after-tax return.
7. Inflation rate
This is the continuous rise in prices of general goods and services, which leads to a decrease in the value of money. A good investment should have a return on investment that is higher than the inflation rate. Some investments, such as property or stocks, can be positively affected by inflation as their value can increase as inflation rises.
8. The rise and fall of market prices
Before making an investment, you should consider the fluctuations in the market. The level of volatility will have an impact on the number of returns the investment yields, which is a part of your risk factor.
Decide how much of your surplus you want to use for your investments, and ensure you budget for unexpected costs, savings, and emergencies, so you’re prepared.