Macroeconomic conditions and their effects on investment decisions

Macroecnomic Situation

In the year 2007 the real estate pricing in the United States plummet from its peak causing securities attached to it to also plummet, hence, damaging the financial institutions in America. As a result securities suffered large losses in 2008 and part of 2009. This triggered a series of problem as the financial institutions tried to regain the hold of the situation. In the long run some major financial institutions collapsed. Most governments responded with rescue packages to bail out their financial institutions. During the period global economies slowed down due to inadequate credit and reduced international trade leading to a global financial crisis (United Nations Conference on Trade and Development 2009).

The global economy is currently trying to recover but it is unclear whether it will be able to fully recover in time. By 2011 fisical support measures had faded away, being that they were not fully replaced led the softening of output and trade growth. This situation is calls for concern since the temporary drivers have are slowing down before self-sustaining growth dynamics catch up. In the U.S. unemployment is still persistent and there is a low wage growth which is holding back aggregate demand. There is also a heightened risk of home for closure due to the fact that there are prospects of prolonged depressed housing prices (Global Economics Crisis Resource Center 2010).

The Euro zone has also experienced considerable slow growth as of the begging of 2011. The zone is also suffering from a debt crisis that heavily weighs on consumer and business confidence. Since policy makers in developed countries have been unable to prevent the debt situation and fragility in the financial sector from escalating there in an acute risk for the global economy in the 2012-2013 outlooks. Coupled with high unemployment there is a possibility of renewed global recession (Fabrizio 2010).

The experience in developing countries has been different since most countries have only experienced a mild economic slowdown. Hence, it is the developing countries and economies which are in transition are expected to stoke the engine that drives the word economy. Despite of the global crisis developing countries have had an average in their income. Growth in countries like China is expected to remain robust. However, its GDP growth has slowed from 10.3% in 2010 to 9.3% in 2011 and expected to slow further down to 9% in 2012-2013.

It is likely that most investors will be cautious when making decisions on which markets to invest in (Arieff, Weiss, & Jones 2009).

GDP, inflation, unemployment and demand are necessary factor in making investments decisions. All this factors are important in making investment decision for instance the GDP product gives investors an idea of the potential the country has on different are sectors of business. The rate of unemployment is another indicator of the availability of labor in the market. Another important consideration is the rate in inflation which indicates the rate at which commodity price rise. When making investment decision investors need to consider several factors since no single factor will give adequate information the economy.

Q2. While making investment it may be wise to give considerations of other people especially in this people are expert in the field. Taking considerations of expert advice is particularly important for individuals who are not experts in financial matters. If an individual want to make any investment it would be advisable to take a cautious approach. This is because the globally economies and the firms operating within them have a lot of risks. This does not mean there are no investment opportunities in the market (Fabrizio 2010).

Having such considerations in mind the individual should also consider what objective they for the investments. In most instances an individual may have objectives that are either short-term, medium, long-term or may contain two of either objective. Hence, if an individual plans to purchase a new car and make a deposited for a new house it would be difficult to achieve them at the san time. The purchase of the new care will be the short-term goal which can be achieved within a period of three years and the deposit for the house will be set for five years (Skipper & Kwon 2007).

To achieve this it will be appropriate make investments in several categories. Market conditions often cause assets in different categories to perform differently. In such case it's likely that while one category is performing well the other will not. Investing in more than one kind of asset reduces the risk of losing money and ensures that the overall investments are secure. Therefore if returns from one asset drops

To meet the short-term goals the appropriate choice would be stock investments. When companies become public put out stock and shares through launching IPOs. The value of stock is not always contestant they may constantly change either by going up or down. Therefore, this can be used to achieve short-term goals and the individual can sale the shares at any time if they think it is suitable.

For the long-term goal the person may use a bank savings account. Savings accounts are simple and accessible to most individuals. Savings accounts are operated through a financial banking institutions and the person who deposits in the account is guaranteed some payments. The payment can be calculated on either an annual or bi-annual basis. The total interest payment earned depends on the offered interest rate on a savings account and the total amount in the account (Skipper & Kwon 2007).

Investing in shares exposes an individual to allot of risk especially if the stocks perform poorly or if the company goes bankrupt which is likely in this economic situation. Hence, by having a saving account it this provides a cover in cases of losses in stock or even if the individual become unemployed this will be particularly important if there is a downturn of the economy. However, it will also be important to rebalance the investment portfolio to ensure that your portfolio does not overemphasize one or more asset categories, and also ensure that the portfolio is returned to a comfortable level of risk.