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2 points you should consider aside from the share price before investing in 2020

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When you look to invest, one of the key elements to being successful is the price at which you buy versus the price at which you sell. Using the historical share price movement can also be of benefit when deciding whether to exit and sell a company, or whether to buy more.

For example, last week you may have looked at a company and thought the share price looked expensive. Yet, following the general election on Thursday, the FTSE 100 (along with almost all companies in it) rallied due to the good result. This would have made the share price even more expensive is your eyes, but for the rest of the market, it deserved to go higher due to external factors.

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Below are two more factors aside from politics which investors for next year here in the UK should really take note of.

Interest rates

This is a big one, and one which I don’t think many investors are playing close attention to. At the moment, rates here in the UK are at 0.75%. For the past year at least, the Bank of England have said that it is watching Brexit development and will adjust the base rate accordingly, depending on what happens. So far it has not needed to change it as Brexit keeps getting delayed, but with the new Parliament now sitting, it looks like the deadlock could be broken by the end of January 2020. 

Therefore, watch out for any rate movements into the summer, either lower if we see economic conditions worsen, or possibly even higher if we see inflation explode higher. For companies in the FTSE 100, generally speaking it is worse for them when rates increase as it makes existing debt more expensive to pay off and also can hinder the ability to take on new debt needed to grow or finance the business in the current state.

Thus a rate move next summer could hamper or benefit the company you are looking at, so review the debt levels in advance to see what the impact could be.

Value of the British pound

I write often about how the value of the pound (GBP) is correlated to the stock market, but it is something that not many investors appreciate as an external factor.

The currency is really a case of the tail wagging the dog, in that if the value of the pound significantly rises, this benefits companies who need to import goods and services from abroad. This is because a strong pound on the flip side means a weaker euro or US dollar, so British firms are able to benefit from artificially cheaper prices due to the foreign exchange rate.

Going into 2020, the pound is still at historically low levels, despite the bounce it had over the last couple of months. Therefore, make sure you check the exposure of the company you are looking at investing in to different countries. Also it is key to check if the firm is a net importer or exporter, as if it is the latter then the exchange rate moving higher next year could hurt the business. 

Overall, checking external factors such as interest rate projections and the value of the currency can really give you more insight into whether to invest than just the share price.

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Jonathan Smith and The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.