- Date : 05/06/2022
- Read: 4 mins
Know everything about the risk factors involved while you plan to experiment with your investments and want to try your hand at new ventures.
Investing refers to allocating resources, typically money, into assets with the hope of earning profits. Investments vary in type and can include savings accounts, fixed-term deposits, property, and shares on the stock market
Contrary to popular belief, personal finance decisions are not so black and white. Before making an investment, first, consider factors such as your needs and goals in life. It would be best if you also took into account aspects of the market that you can't control so that the money you invest will be put to its best use. The return on this investment could be much better.
Factors to Consider Before Experimenting with your Investments
Return on Investment (ROI)
The advantage that the investor receives after deducting the investment cost is known as return on investment.
- It could come in the form of interest, dividends, or capital gains (an increase in the value of assets).
- The net after-tax income should be used to calculate the return on investment.
- The net after-tax return should exceed the rate of inflation.
- In most cases, risk and return on investment are closely interlinked.
Risk is the possibility of losing money due to unforeseen occurrences in finance.
The greater the possible profit, the greater the chance of losing money.
Investing in stocks, for example, has a bigger risk than a fixed deposit, but it also offers better profits.
Period of Investment / Term of Investment
The investment period is the length of time that the investment is held for, which can influence the return on investment.
- Short, medium or long-term investments are all possible.
- Short-term investments must be held for one year or less, and long-term investments must be held for at least one year.
- Long-term investments, on average, outperform short-term ones.
- The investment time is determined by the investor's particular needs.
Rate of Inflation
Inflation is defined as an increase in the price of basic goods and services over time, resulting in a decline in the value of money. The inflation rate is a percentage that is determined every year to represent the increase in the average price of goods and services in the economy.
When the rate of inflation rises, customers' purchasing power declines.
A smart investment should generate a higher return on investment than inflation.
Inflation has a favorable impact on some investments, such as real estate and stocks.
Aspects of Investment Planning
When making investing decisions, you should think about the safest options available. Even if certain investments have poor returns, they can be safer than those with higher returns.
- Look for possibilities with a proven track record of success.
- Divide your savings among the many investment options to reduce risk.
- It's also worth thinking about how interest is calculated.
Venture capital is an ideal financing structure for start-up funding that needs cash flow to scale and will probably invest a lot of energy in the red to incorporate their business into an exceptionally beneficial organization
By raising venture capital rather than applying for a new loan start-up businesses can fund-raise that they are under no commitment to reimburse. However, the conventional advances have fixed financing costs, start-up equity investors are purchasing a level of the organization from the founders. This implies that the organizers are giving investors freedoms to a level of the organizational benefits in ceaselessness, which could amount to a lot of money.
A two-year ago during the pandemic, raising support by India-centred PE/VC investment reserves has gotten with January 2022 recording billion dollars in gathers pledges, adaptable obligation capital across the lifecycle of land projects, being the most noteworthy.
Investment is a great topic to study and especially before investing your hard-earned money as there are multiple factors affecting the market and so must your investment decisions. No doubt, we must experiment with our investments but only after knowing all the scenarios.