Wise Investment: Better Future

Topics: Investment, Risk, Finance Pages: 7 (2493 words) Published: January 26, 2013
WISE INVESTMENT: BETTER FUTURE Introduction The most critical challenge faced by investors is investment decisions. Decision-making is defined as the process of choosing a particular alternative from a number of alternatives, Sevilla (1972). Knowing where to invest, how much money to put in as the proper timing are key ingredients in making sound and wise investment decisions. According to Miranda (2002), one of the most important finance functions is to intelligently allocate capital to long-term assets which is called capital budgeting. In order to get the maximum yield in the future, someone must allocate his capital into long-term assets. It is difficult to calculate future return because of future uncertainty. Along with this uncertainty comes the risk factors which to be taken into consideration. The key to a successful financial plan is to keep apart a larger amount of savings and invest it intelligently, by using a longer period of time. The turnover rate in investments should exceed the inflation rate and cover taxes as well as allow you to earn an amount that compensates the risks taken. Savings accounts, money at low interest rates and market accounts do not contribute significantly to future rate accumulation. While the highest rate come from stocks, bonds and other types of investments in assets such as real estate. Nevertheless, these investments are not totally safe from risks, so one should try to understand what kind of risks are related to them before taking action. The lack of understanding as how stocks work makes the myopic point of view of investing in the stock market ( buying when the tendency to increase or selling when it tends to decrease) perpetuate. Risk is an inherent part of investing. The risk factor plays a very significant role in calculating the expected return of prospective investment.

Furthermore, inflation has served to increased awareness of the importance of financial planning and wise investing. More inflation is a worry for each and every individual. Due to inflation value of your money in future will decrease. To Cope up this, investors wants to invest their money and earn certain rate of return which is more than rate of Inflation. Having clear reasons or purposes for investing is critical to investing successfully. Review of Related Literature When talking about investment, it is not necessarily a matter of continuously accumulating wealth or being materialistic. Rather, it should be located upon as a means of reducing future financial worries and ultimately in providing financial and personal independence. Investment In his book, Business Finance, Second Edition (2007), Medina defined that investment is made when a firm spends, some of its funds for the establishment of a project. By doing so the opportunity to use the same funds in the possible project is loss. Investment refers to assets acquired to realize income and/or earn profit. They are expected to increase one‟s equity or reduce future financial worries. It requires sacrificing some of current pleasures with the hope and expectation that resources acquired will enhance the future (Mejorada, 2001, p. 3). Investment is held to refer to the employment of funds in the productive assets for the process of acquiring profits. A businessman is said to engage in investment when he places additional funds in his business enterprise so that he can look forward to the receipts of increased profits, just as when he engages in the purchase of securities managed by others. Investment

shall be held to the placement of capital to be managed by others in order to obtain adequate rewards therefrom in the form of interest, dividends, changes, rents or capital (Miranda, 2002).

Investing and Speculation One of the factors that can make it difficult to know the difference between investing and speculating is that both produces gains and losses. Some sound investment strategies can turn losses for a fewer years, while speculating...
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