The Characteristics of a Positive Investment Climate

by Geri Terzo

The characteristics of a positive investment climate are likely to differ based on an investor's perspective. When stocks are selling off, or losing market value, certain investors consider this a buying opportunity while others flee the equity markets for more stable securities. On the other hand, a rising stock environment makes equity shares more expensive but the mood amongst investors and traders is certainly more positive. Inflation also plays into the investment climate, and can have a mixed effect.

Consumer Spending

Corporate profits are likely to increase in an expanding economy, which can translate into greater returns in the stock market for investors. Consumer spending is one indicator of the health of an economy. In an environment where consumers are spending more money, certain sectors of the economy become especially attractive. Rising consumer spending is likely to benefit sectors that facilitate discretionary spending for non-essential items, according to Smart Money. Retail and restaurant stocks could rise as a result, for instance.

Value

In an environment where certain stocks are undervalued, investors can uncover investment opportunities. If a stock is under selling but still has solid fundamentals, including profits as expressed through earnings, investment conditions are favorable. Despite price declines a company may still represent value because investors might be able to purchase a good stock at a discount. Earnings are a reasonable gauge for a stock's future performance, according to MSN Money. An environment where stocks appear to be inexpensive relative to anticipated earnings growth represents a positive investment climate.

Bonds

Inflation alone does not create an appealing economic scenario for bond investors. Inflation-protected bond securities can provide a safe haven for investors even when the value of a currency is threatened, however. Inflation-adjusted savings bonds have a feature that makes these securities good investments when other asset classes are suffering. One of the two interest rates attached to I-bonds changes semi-annually in response to inflation rates. When inflation rises as measured by an economic indicator, so too does the yield, or return, that investors are able to secure for six months, according to "USA Today."

Considerations

An investor who waits for investment conditions to line up perfectly could miss out on certain opportunities. This could be costly if the investor is preparing for some major event, such as retirement. Instead of waiting for the investment climate to become favorable, investors should continue to allocate money to a retirement fund, such as a 401(k) portfolio, according to a 2009 article on the CNN Money website. Investors should take a long-term approach when saving for retirement and not be deterred by changing market conditions, according to the article.

About the Author

Geri Terzo is a business writer with more than 15 years of experience on Wall Street. Throughout her career, she has contributed to the two major cable business networks in segment production and chief-booking capacities and has reported for several major trade publications including "IDD Magazine," "Infrastructure Investor" and MandateWire of the "Financial Times." She works as a journalist who has contributed to The Motley Fool and InvestorPlace. Terzo is a graduate of Campbell University, where she earned a Bachelor of Arts in mass communication.

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