Understanding economic concepts to help make wise investment decisions

Most of us easily talk about stocks, real estate, savings and all those great terminologies that help grow our money, sadly not many of us take the time to understand the economy and how it affects our daily lives and its impact on our decision making when it comes to investing.When we choose to make an investment decision, we are basically looking to the future and our expectation is to gain. We believe the investment will go up in value and the seller probably believes it will go down. None of us can accurately predict what will happen, but I can assure you that the more informed/educated you are the more you are likely to predict correctly. When choosing to invest, it is important you understand that the global markets are constantly evolving, partly due to technology, competition and changing consumer demands, and this constant changes will mean that you have to continually keep up with the change, revise your investment strategies according to the prevailing market conditions. Hence, the importance of taking time to understand the basic concepts in economics. Once you understand the concepts of economics as an investor, you will be able to analyze economic growth, and areas/industries that have opportunities for growth. These will aid your decision making and investment choices. You will be able to improve and even change your strategies and more importantly understand when to buy and when to sell and at what percentages to hold of certain investments. If you are able to analyze correctly, then chances are your investment will gain higher returns than the average investor. Economics is about trying to understand the choices we make, and how the sum of those choices affects the market economy. There is an interaction between the choices we make and the economy as whole and the prices are determined by the supply and demand. When you choose to go out and buy a phone, laptop, or even groceries, you are faced with plenty of choices. Economics is all about trying to understand why we make those choices, for example, why would you choose an apple stock instead of a Microsoft stock? Below are three economic concepts you need to understand: Interest Rates: This is the rate we pay interest on funds that have been borrowed from a lender. This provides the linkup between the present and the future economic activity. For example, what do you stand to gain by not spending today, and saving the money? Would a higher interest rate on savings account entice you to save more? Would a lower borrowing rate tempt you to borrow more? What if the rates went up? Supply and Demand: How much quantities of a service/product will consumers desire, and how much of the same product and service can the market offer. The interaction between the two reflects the price consumers are willing to pay. The higher the price, the lower the quantity, and likewise the lower the price the more demand. Inflation; this is an important economic concept, because it shows the rate at which the real value of your investment is being eroded, it is about the growth of your money. This concept will allow you understand how inflation impacts your investments and the consequences of your investment decisions.