What is meant by investment decision? State any three factors which affect the investment decision. (2024)

FAQs

What is meant by investment decision? State any three factors which affect the investment decision.? ›

Additionally, making an investment decision requires taking into account a number of important factors, including your personal financial objectives, risk tolerance, and budgeting abilities.

The decision is made based on investment objectives, risk appetites, and the nature of the investor, i.e., whether they are an individual or a firm. Investments are primarily classified into short-term and long-term.

Investment decision refers to selecting and acquiring the long-term and short-term assets in which funds will be invested by the business.

Key Takeaways

An investment can be characterized by three factors: safety, income, and capital growth. Every investor has to select an appropriate mix of these three factors. One will be preeminent. The appropriate mix for you will change over time as your life circ*mstances and needs change.

The main factors affecting investment spending are the interest rate, expected real GDP growth, and current production capacity.

► Principle 1: Money Has a Time Value. ► Principle 2: There is a Risk-Return Tradeoff. ► Principle 3: Cash Flows Are the Source of Value.

Wealthy investors are known for their strategic approach to investing, considering various factors before making investment decisions. Three key aspects that often influence their investment choices include risk tolerance, portfolio diversification, and goal-based investing.

Before making a new investment decision, the financial health of the company should be assessed. Financial documents such as income statements, balance sheets, and cash flow statements must be thoroughly examined to understand the company's liquidity, profitability, and debt structure.

Investment management refers to the handling of an investment portfolio or a grouping of assets. It involves buying and selling assets, developing short- and long-term investment strategies, creating a tax strategy, and managing asset allocation.

In general, three factors should be considered when making capital budgeting decisions: cash flow, financial implications, and investment criteria.

What are the 3 factors that influence rate of return by investors? ›

Three factors affecting the required rate of return are – the real rate of return, inflation premium, and risk premium.

Factor investing is an investment approach that involves targeting specific drivers of return across asset classes. Investing in factors can help improve portfolio outcomes, reduce volatility and enhance diversification.

In general, changes in currency and interest rates, regional or global economic instability, and economic and market conditions are some of the factors. Interest Risk: Investors are plagued by interest risk, which appears as fluctuating interest value over the course of the investment horizon.

Factors that can affect asset allocation

When making investment decisions, an investor's asset allocation decision is influenced by various factors such as personal financial goals and objectives, risk appetite, and investment horizon.

The proper asset allocation for your situation may differ. In applying any one of the profiles to your individual situation, you also should consider your other assets, income, and investments (including home equity, savings accounts, and other retirement plans), as well as your needs, goals and aversion to risk.