You will risk devaluing your money if you keep all your savings in a bank account. But, if planned and implemented properly, investment can be really helpful for you in the long term as it will beat the effects of inflation. As interest rates are low, your best option is investment for letting your money grow. However, it is important to study investments in detail before choosing one for your requirements.
The first important part is to know and assess your financial situation before proceeding. You must have a practical understanding of your expenses and be very clear regarding the basic principles of investment. These principles include:
1. Review your financial situation
To begin with, pay as much debts as possible before beginning to invest. Be sure that you have enough money for 3 to 6 months in case of any adverse situation with your investment. This will give you an indication regarding our financial capacity and you will know how much you can afford to invest. As every investment involves the risk element, don’t push with the investment limit and remain within your affordable limits. Invest the amount which you can afford to lose.
2. Know your goals
Knowing your investment goals will help. Whether you plan to go for vacation overseas, buy your next car, or buy your dream house, clarity about your goals will be advantageous. If you know your goals, you will know how much to invest for each goal. A good way is to have different investments for different goals so that you can draw money when required.
3. Don’t put all your eggs in one basket
By putting your money across investments you reduce the risk. As financial markets are prone to risk and fluctuation, it is important to allocate your money to different assets rather than putting all the money in single asset or market sector. You should even avoid investing in single asset class such as stocks or bonds. Known as diversification, spreading investments across assets is the fundamental principle of investing.
4. Consider your appetite for risk
Assess the risk factor. When investing, you accept risk and reward. Investments involving high rewards, involve high risk as well. When investing, you should take into account factors such as your age. The more your age, the near you are to retirement, and your appetite for risk may change with time. You may have less appetite when you are nearing retirement.
5. Get professional assistance
It is definitely a good idea to avail professional assistance unless you are an expert or at least have a good understanding of financial markets. You should proceed on your own only if you have knowledge of factors such as risk appetite, asset allocation etc. as investment involves putting your hard earned money out of the banks to varied portfolios.