While investing is something that every person who wants to grow their wealth should consider, it’s not something that you should jump into without thinking about how you will do it. Essentially, you’re going to want to make sure that you have a strategy. Here, we’re going to look at some of the elements of an investment strategy worth considering.
What are your goals?
Some people get into investing because they want their money to grow as much as possible. However, there are plenty of different objectives that can see you adjusting how much you invest and into what. For instance, you might be investing with the goal of buying a home, so you want to see relatively stable gains in a short time frame. Or, you might be aiming at retirement, so you may be willing to tolerate slower growth for much less risk. Consider what potential investment objectives you want to work by, and make sure that you choose investments that keep true to those objectives.
Know how much you’re willing to invest
One of the keys to investment worth keeping in mind is that you’re going to get back relative to what you put in. However, that doesn’t mean that you have to wait until you have saved a big fund before you can start putting it into some investments. You can start with hundreds of dollars, rather than thousands. However, you should always bare in mind that even the safest of investments come with a degree of risk. You shouldn’t be investing the money that you need to meet your regular costs of living. You should create a budget and work out how much of your money you’re able to put towards investing each and every week to make sure that you’re doing it responsibly.
Diversification is key
As mentioned, there is risk associated with investment, regardless of what you’re investing in. However, it can’t be denied that some investments have a higher level of risk than others. Bonds are investments based on debts and are fairly reliable and low risk, while stocks are based on the increasing and decreasing worth of company stock. You should diversify your portfolio, making sure that you’re managing your risk well while also leaving some room for potential growth. Diversification also works to reduce your risk by making sure that you’re investing in different markets. For instance, investing in real estate and health care stocks at the same time means that even if the health care industry takes a major hit, your real estate investments aren’t going to suffer the same shocks. Basically, don’t put all of your eggs in one basket.
Getting into the crypto market
One of the investment markets that has been a lot of interest over the past decade and a bit has been that of cryptocurrency. This is an alternative currency, designed to be used without any centralized bank in control. However, it is used just as much as a speculative investment, with its worth typically based on the confidence that investors have in its potential utility. Bitcoin is the most famous, and you can get into buying and selling Bitcoin as well as its alternative fairly easily nowadays. There are trading apps that you can use to buy, sell, or use Bitcoin in daily transactions, allowing it to double as an online shopping currency as well as another asset you could potentially diversify with.
Generating some income
In most cases, when investing in an asset such as stocks, bonds, or crypto, the aim of the game is to buy it, sit on it, and wait for the value to increase before you sell it to either pocket or reinvest the profit. However, there are also investments that can generate a passive income. For instance, there are stocks that pay dividends, which is a portion of any value gain on it. Of course, when it comes to real estate, you can invest in rental properties, meaning you keep the property and its value, while also charging rent for others to make use of it. With this, you can use your passive income to either supplement your earnings or contribute even further to your savings.
Know how much you’re willing to lose
As mentioned, when it comes to your investments, you want to make sure that you’re never investing so much that you’re endangering your ability to manage your existing financial obligations. While, clearly, most people are looking to gain wealth through investment, you should never invest more than you are willing to lose, as well. If you’re looking for low-risk places to put your money, then savings accounts are rarely, if ever, going to endanger the money that you put in them. With investing, there is always a risk of losing money, even if it’s rarely going to lose you all of it. It’s wise to learn more about your risk tolerance and to base your investing decisions on it. Otherwise, you can risk more than you ever intended to.
Consider having it managed for you
If watching the markets gets you feeling a little dizzy and you are intimidated by the prospect of managing your investments yourself, then you need not worry. There are always ways to automate the process somewhat. If you’re willing to give up some control over where your money goes and accept the risk that comes with that, then you could look into working with a robo-advisor. You can still manage your investments to some degree, such as by setting risk tolerance levels that you want to work with. There are plenty of robo-advisors to work with. However, if you’re willing to spend more money, then you can hire a financial advisor, very much a real person who will take a more hands-on approach.
Always pay attention to costs
There’s money to be grown in investing, of course. However, there’s also money to be spent. This goes beyond the potential losses that you can make with your investments, as well. There are fees and real costs that come with investing. This can include the costs of using various investing platforms. There are other costs such as annual and custodian fees for being able to trade on the market. If you’re investing with mutual funds, then there are going to be costs such as an expense ratio which will get paid as a percentage on the overall value of money you have in the fund. Accounting for the costs of investing is important if you want to get a real idea of how much you’re actually making from it.
Practice makes perfect
Taking the time to learn how to make investments can be very useful for giving yourself a better chance of using your money more mindfully. However, you can go beyond reading up on investment strategies and learning how to use trading platforms. There are investment simulation tools that can help you play on the market with fake money, so you can start to get a better idea of how to manage various investments, how to balance your risk, and how to buy and sell in ways that fit your strategy. It’s not exactly like the real thing since the potential to lose or gain real money are always going to weigh more heavily than simulating it, but they can be very helpful.
The factors that determine your investment strategy are likely going to be down to your personal circumstances and goals largely. However, the questions posed by the points above are worth thinking of, at least.