Financial Literacy for all - Investment

Investment involves expenditure on an asset which is intended to provide a return by way of interest, profit, income, dividends, value for money or capital appreciation.

Investment can only be undertaken if there is some money or there are resources that we want to channel through other means to earn us some income, then we should invest in assets that would give us high returns on our money now or in the future.

In all investment ventures, there are many factors to consider before one takes the final decision to invest in a particular asset. Factors such as:

• Risk and Security - the upward and downward movements of the particular investment, the volatility of the asset, industry, economy and world economic, environmental, inflationary trends and societal factors. How secured will be the investment in a week's, month's or a year's time?

• Profitability - all investments are expected to bring in some great returns or value for money. This should be determined before taking up the investment. The stability of cash inflows and earnings would make a particular investment a tantalizing one for all investors.

• Liquidity - how soon can one get back one's money if one is in dire need of it? The quickest ability to turn the investment into liquid cash is paramount for many investors. If funds invested would be needed at a short notice for an alternative purpose then the investment could be capable of being liquidated or turn into cash quickly. There could be a spring-up of other higher interest earning ventures which one could re-channel one's funds to enjoy those higher interests. Investment that does not provide quick access to one's investment whether matured or before maturity is a hindrance by itself and might not be worth investing in.

• Taxation - investment should be chosen to help minimize tax liability of the investor. Investors can opt for investments that have low tax on capital appreciation, or low tax on interest and or dividend earned. All investments attract tax unless they are tax exempt or granted some holidays; the tax could be imposed on the interest and or dividend earned and or could also be imposed on the capital appreciated, if there is. The investment opted for should be the one that has low tax on both the interest and or dividend earned now and low tax on the capital appreciated where they could all be enjoyed. There could be tax incentives for investors to encourage more investment in particular sectors. A higher tax rate payer may opt for the investments that offer high growth and low income.

• Purpose -investment could be made with a variety of motives and intentions.

It is a great idea to invest. It is the investment we make today that creates wealth for us tomorrow, so we should invest in profitable ventures but first by analyzing the factors above among other things.

Credit: Godwin-Xavier Ayeebo © 2010
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