5 Factors to Consider Before Making an Investment Decision

Risk Appetite

A typical investor is risk averse. Ideally, you would not want to take any risk when you invest but at the same time you want to make as much money as you can from your investment.

But this does not work this way in the investment world. If you want higher returns from your investment, you need to take higher risk. If you are scared of losing your money, you will have to take the lower risk route but your returns on investment will be lower too.

Remember, the higher the risk the higher the return.

Lockup Period

If you just need to park your excess cash temporarily, you can look for short-term, low-risk investment instrument that can assure you that your money will be protected with small income.

But if you want higher returns, you can take more risks and invest according to your time horizon objectives. For example, you can park your money temporarily in mutual funds or equities. Or if you want long-term with high risk high return approach, you can invest in startup business.

Liquidity Assessment

There are good investments that can generate decent returns but may be difficult to sell when you need to get back your money. For example, investing in real estate can give you good rental income but depending on the marketability of your unit, it may take some time for you to find a buyer who will be willing to pay the price you want.

Tax Considerations

Understanding how taxes will affect your returns is critical because it helps you determine how much income you will actually receive after taxes are paid. This will also guide you in developing your overall investment strategy later on when you are building your portfolio.

Risk Management

The key to making good investment decision depends on your ability to maximize returns while minimizing risks. Managing investment is all about managing risk. You can control your risk by knowing how to spread it across your investment assets.