Time lags. ... while … To help you derive the best value out of your investment, here is a list of factors to consider. (8), Exam Practice Questions | Grade 12, Grade 12 – Term 3 Notes. (b) Dilution of Ownership : A high (D/P) Ratio recognises the dilution of ownership both from the standpoint of control as well as from the view point of earnings of the existing shareholders. The factors are: 1. Consider an appropriate mix of investments. In a recession, investment will fall sharply, but not completely – firms may continue with projects already started, and after a time, they may have to invest in less ambitious projects. Location, Location, Location. You are welcome to ask any questions on Economics. You have to consider your investment property in context. Low volatility means that the investment, market or economy is stable. List of Factors to Consider When Making Investment Decisions. Their value can increase as inflation rises. It is a mechanism in which a business determines and evaluates potential large expenses or investments. Interest rates can be outweighed by economic conditions. While each situation needs to be considered individually and with local trends in mind, these factors are a good jumping off point for determining whether it’s a good idea to take the leap. If interest rates are cut, then more investment projects will be worthwhile. – A visual guide When the inflation rate rises, the purchasing power of consumers decreases. While each situation needs to be considered individually and with local trends in mind, these factors are a good jumping off point for determining whether it’s a good idea to take the leap. Evaluation – Confidence is often driven by economic growth and changes in the rate of economic growth. If interest rates are 5%, an investment project needs to give a rate of return of at least 5% or more. Does government debt lead to lower economic growth? Factors to consider before making the right investment decision By: Mukund Seshadri The problem with the 21st century seems to be that of having too many options. Read ahead and know more about them. What Factors Should You Consider before Buying a Stock? Therefore despite record low-interest rates, firms were unable to borrow for investment – despite firms wishing to do that. Summary – Investment levels are influenced by: Interest rates (the cost of borrowing) Economic growth (changes in demand) Confidence/expectations; Technological developments (productivity of capital) Availability of finance from banks. Total cost = A × I + A × S/Q 1 + C(R – A) Q 1 /2R. Capital budgeting hence play important role in business decision making. Long-term investments generally yield higher returns than short-term investments. Factor # 1. Finance in the stock research section). If there is uncertainty (e.g. Therefore investment is strongly influenced by interest rates. Many shares on the stock market are considered fairly liquid because they can be easily sold to other traders in the market. Explore opportunities that have a history of good returns. (5), 2. Cash is considered a liquid asset because it can be easily accessed and used to buy almost anything. Marketability: The prime requisite of highly liquid and profitable investments is that they can be liquidated as and when required to replenish cash. A good investment should have a return on investment that is higher than the inflation rate. But the wrong investment decision can cause grief and havoc. (b) Making: Similarly while making we have. Location, Location, Location. Article content. Although some investments offer low returns, they can be safer than those that offer higher gains. Another factor that can influence investment in the long-term is the level of savings. There are factors which need to be considered before making investment decisions. Making an investment in the share market is not as easy as it seems because every investment brings along a certain risk ... there are a number of other factors as well which are also to be considered before making an investments. Marketability 2. ... while still … If demand is falling, then firms will cut back on investment. Five key factors to assess when making an investment decision. In finance, risk refers to the possibility of losing money due to unforeseen circumstances. Factors to Consider Before Investing One of your budgeting goals may be to have extra money that is not spent during the month. Let us take a look. The higher the potential return, the higher the potential risk of losing money. In South Africa, the inflation rate has been around 4% for the past few years. A good investment should, therefore, generate an interest of 6% or more in order to beat inflation and produce visible returns. To invest at the right time you have to be very observant. 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