To invest effectively means putting money into the expectation of a return in future. Simply put, to invest in shares means buying an entity or an asset with the intention of generating profit from the investment over a specified period of time or the return of your initial investment. You will also need to analyze the market, determine the cost and benefits of investing in stocks, discuss with experts and professionals who can help you understand the investing options, and develop strategies to make the best use of the opportunities available. You need to know when, how and what to invest in.
The key to investment success is understanding one important thing – future returns are based on future returns.
The present value of any financial asset is equal to the amount of money invested in today’s dollars. Therefore, to achieve the same economic growth, an amount equal to or more than one dollar spent in buying shares should be made in order to achieve the same economic growth as the original investment. In investing terms, a current economic growth in an asset means it will generate more income in the future as compared to its original investment in the stock or real estate.
There are different ways of investing, but the most popular ones are buying stocks, bonds, mutual funds, exchange-traded funds, real estate property, rental or capital income property, and so on. So, when planning to invest, the first step should be identifying ones’ future returns. Experts recommend that anyone planning to invest should set aside a specific amount for his desired investment. However, not everyone follows this. This is where a seasoned financial professional can help in identifying the appropriate investment strategy.
The first step in identifying appropriate investment strategy is understanding the factors affecting investment growth.
Factors affecting investment growth include economy of the country, the stock market, interest rates, inflation, and other economic factors affecting investors. It is also wise to consider other factors like market risks, management risks, credit risks, and other factors that affect investors. Once investors get a full understanding of these factors affecting investment, they can start searching for suitable investment opportunities.
Most commonly people follow the path of short-term investing which is inorganic growth.
They usually rely on the stock market to make a profit. This is because they believe, that the stock market will always move either up or down depending on the overall economic condition of a country. However, investors need to look beyond this and start investing using long-term investment strategies. A good example of such long-term investment strategy is investment in real estate property.
The traditional approach towards investing in real estate is through purchasing rental property, developing the property, renting it out, earning rental income, and then selling it. There are many ways of investing in real estate property, and the best thing about investing in it through a bank is that you don’t have to pay any legal fees when investing your money, along with the tax deductions. You can even save more if you use a vest ment account, which a qualified investment advisor can help you create.
Expected return rarely matches the actual return
As mentioned earlier, most people follow the investment behavior of the market and invest according to the expected return. Unfortunately, the expected return rarely matches the actual return after all the investment expenses are made. Sometimes, the unexpected occurs and the investment behavior reverses unexpectedly. One example of unexpected market behavior is the sudden fall in the price of gold, when people expected a rise due to the increasing demand for gold. When the price of gold hit an all-time low, people lost their appetite for gold and started investing in other asset classes like currencies and bonds instead.
High tolerance for risk
The most important thing about investing is that you need a high tolerance for risk. This means that you should expect to lose some of your investments, but should also be prepared to accept higher returns in order to mitigate risks and increase profits. There are plenty of banks in South Africa to choose from and the investment options are many. Even though we can expect some losses on some of the bank’s investments, the overall portfolio will still have high levels of efficiency and profit-making.