There are ways to wisely invest money that are more than just putting cash into an account. And there are certain steps to take.
- Plan. In order to invest wisely you need to know where you are now and where you want to be. This means looking at your goals and designing investment strategies to ensure that you can reach those goals. And it includes budgeting to know where you money goes.
- Diversify. This means not investing in one investment alone. If you invest only in one asset or type of investment you are subject to events that may even wipe out your money. Diversifying reduces this risk as each asset class has its own business cycle. These cycles can work in opposite direction – when one is down another is up. This way your return is averaged and the volatility is reduced.
- Pay Yourself First. You pay the landlord, the bank, the power company and so on. Think of paying yourself as paying for your future income needs. Pay yourself a salary.
- Invest for Your Time Frame. This goes back to your goals. If you are saving for a new home you are likely to need the money in the short-term. You won’t want to invest in equities or other investments that have volatility if this is the case. Once again if you are investing for your retirement you will be looking at a longer time frame and can take on more risk.
- Think Long-Term. Once you start investing do not be tempted to look too often at your investment. It is likely to go down and if this happens at the start you may be tempted to take the money out and miss the opportunity of growth. Long-term investing is just that. Don’t treat it as though you want the money next week and then take fright when it’s down.
- Assess Your Attitude to Risk. If you find that you just can’t stand having your money losing any value you need to look at your risk tolerance. Many of us think we can accept our money fluctuating but when it comes to the crunch can you really? Find a suitable risk profiling tool and use that to determine what sort of investor you are. The longer you have until you require your money the more risk you can accept.
- Always put Money Aside. This goes back to paying yourself first. Continue to invest something even when times are tough. If you put money away and then pay your bills, you’ll always have something to fall back on.
- Invest in Yourself. Increase your knowledge with study, start a business, do something you’ve always wanted to.
- Repay Debt. While this is not a traditional investment it is one of the best uses of your money if you are in debt. Credit cards have high interest and the return on any investment is unlikely to be higher. Think of it this way, if you repay a debt with an interest of 20% this is actually your guaranteed return.
- Be Patient. Your money is unlikely to grow significantly overnight so be patient. Let it grow without whipping it out just because it’s too slow for your liking. Despite what some might tell you there’s no magic investment that will return 100% overnight. Beware of anyone who tells you there is.
Invest wisely and you can have a comfortable and secure future.
About the Author:
Lyn Bell has been in the finance industry for more than 30 years and is a Certified Financial Planner. She has helped many clients achieve their financial goals. Lyn invites you to sign up for her free ezine SoundFinance News.