Six Major Factors that Influence your Investment Choices

Six Major Factors that Influence your Investment Choices

Investment has always been a pretty intriguing aspect. It gives investors the opportunity to generate wealth and expand their horizon in terms of finance. No doubt we all have been fascinated with the allure of investing since the very beginning. What started as a mere investment into traditional means like gold, real estate and more has grown with time to add different verticals like equity, debt, commodities and more.

The present-day investment scene is one vast market filled with plenty of options. There are plenty of choices to go for with each one offering their own set of benefits and returns. But how do you go about these investment options? Is it all simple and easy to opt for or are investment choices influenced by some factors? Well, they are.

Whether it’s a seasoned investor or someone who is staking first claims into the investment scene, there are major factors that influence our investment choices. We here take a look at these factors that influence our investment choices. Read along.

Major Factors that Influence our Investment Choices

  • Investment Goals: First things first, it always starts with setting up goals. We need to be aware of our requirements before starting our investment journey. It is what ends up influencing our investment objectives. Whether you’re planning to invest in your retirement plan or your dream home or funding your child’s education or to simply to meet a future expense, you should be clear of your goals. You can set your goals as short-term ones or mid-term or long-term depending upon the length and requirement. This way you can streamline your investment choices accordingly to your goals. We’ve seen people venture into investment schemes based on their goals. For someone who has a short term goal goes for bank fixed deposits, mutual funds and more while for those seeking midterm to long term go for equity investment. Here let’s take an example, if you want to reach around Rs 10 lacs by the age of 35, you should invest the money wisely in suitable investment options so that you can attain the goal.
  • Risk Tolerance Level: Understanding the risk tolerance level that you can entertain helps you to handle the risk and anxiety that comes with the investment. Risk tolerance is often affected by our perception of risk. Some of the people may be willing to settle for a lower return if there’s low-risk in it. While some may look to leverage high-risk in order to yield high returns. Understanding your level of risk tolerance is a major marker in making investment choices. Someone who is able to handle high risk can go for volatile options like equity and more while someone who prefers to have a low-risk profile can opt for fixed deposit, gold, real estate among few. Although, historically equity market has been a highly rewarding platform and has seen plenty of gains over the period and is much preferred of the lot.
  • Income Level: Investment requires you to put in your money in order to get returns and seek growth in your wealth. Our income levels define the amount of money we can invest in the market. It may also have an impact on our risk tolerance level. Investors with a large pool of income are more inclined towards making riskier decisions and make large investments than someone with a lower spectrum of income. Having a larger income stream can certainly open avenues to different investment patterns and choices.
  • Taxation Liability: Taxation liability often impacts our income and reduces our investable income. And with lesser investible income, you will obviously have to settle for a lesser return. It’s a prominent factor when it comes to influencing our investment decisions. But it’s not all dull and glooms for an investor as there are various investment schemes that help to reduce the tax liability. The options like ELSS and other hosts of Sec 80CC related investments have become a preferred choice for people who want to invest and avail tax benefits. These give you the benefit of increasing your wealth all the while saving on taxes.
  • Emotional Check: Investment is an area where emotion does tend to influence our decisions a lot. It’s not a surprise that the market is often driven by the emotional pull and allure of people going by the rumour rather than making logical decisions. To be fair, investment requires one to keep their emotions in check and don’t indulge in rash decision making. For example, the stock market often tends to go through different wavelengths and is subject to bearish or bullish trends. Most of the people are stuck at thoughts of whether to hold or encash on the stocks. This is where opting for patients and maintaining your stance in line with your goals will help you. Similarly, there are still fractions of people in India who invest in gold and real estate primarily due to emotional allure.
  • Need for Liquidity: One cannot discount the fact that there may arise some unforeseeable situations where you will need an influx of cash on an urgent basis. We all have heard of the phenomenon that we should keep an emergency fund aside for this matter. But in times of need, where emergency funds do not suffice you may have to dip hands into your investment and liquidate them. Liquidity refers to the degree to which you can convert the asset or security quickly into cash. The ability to liquidate your assets is one of the major influencers for anyone making investment choices. There are plenty of assets that have high liquidity like stocks, fixed deposits, liquid funds and more where people are investing into. It’s not that you should go for high liquidity investment only but the ability to quickly sell them off in times of need is a real deal-breaker.  

Investment is often guided or influenced by plenty of other factors apart from the aforementioned one. Aspects like family history, personal profile, financial obligations, and others also tend to affect your investment choices. These aforementioned factors do tend to influence the choices, but it’s still in the hands of the investor to build a solid investment portfolio based on the need and profile of the investor. It’s advised to create a strategy that helps you to structure and balance your portfolio while also giving you the chance for optimum return.


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