Tuesday, May 11

4 Ways To Make Good Investment Decisions

There are many reasons why people invest but the most common is the prospect of not having to work for your entire life. A valuable life lesson is that money is only acquired via payment for services rendered or returns on investments. Making your money work for you instead of keeping it in your back pocket will help you greatly.

When you invest, you will generate more money by earning interest on what you put away. There are many investment opportunities such as bonds, mutual funds, and stocks. The objective is to get the most returns from your investment.

Investing correctly can contribute to a happy retirement. Therefore, it is important to create a good investment portfolio. You could, in fact, retire at a much younger age depending on your investment portfolio and the interest accruable on the investment.

To make a good and informed decision, here are 4 ways to make good investment decisions:

  1. Develop a personal financial roadmap as investing can be a risky business for even experienced investors, and amateur investors can be severely punished. Look at your financial situation with a fine-tooth comb, especially if you haven’t made a financial plan before. You can either make your own decisions or speak to a financial advisor who can guide you. Although, nothing is guaranteed in the world of investment, but a financial plan and or your financial advisor can you gain financial security over the years.
  2. Define your risk appetite before you start making investment decisions. With this, you can decide what investment portfolio to put your money in. As a rule of thumb, the riskier the investment, the greater the returns. Yet, you must not throw caution to the winds. With your risk appetite defined, you decide to invest in stocks, bonds, or money market. Money market fund investment is usually less risky than investment in stock market. If you’re trying to achieve financial security, then you must be careful about your risk appetite.
  3. Spread your investments in different portfolio to reduce the risk of losing substantially. No investment is fool proof or without risk, but to keep your investments returns up you need to invest in different markets and asset categories. The 3 major assets - stocks, bonds and cash don’t move up and down at the same time. This means that if one asset is having a bad run the other asset will have a good run. Asset allocation is important to ensure you meet your financial goals. There is no gain without risk.
  4. Always have an emergency fund to cover you in case you lose your investments. Smart investors always put money aside in a savings account to ensure that they are covered if they lose all their investment. Smart investors also invest in life insurance policies like life savings and education plan to ensure all angles are covered. A good rule of thumb is to keep at least 6 months of your salary in your savings for any rainy day.

To be a smart investor, you need to have a financial plan and or speak to a financial advisor. Always put these 4 ways to make good investment decisions in mind.