Image by: Making Money
By: Giovanni Fields
The entire point of investing is to expend money with the expectation of receiving a profit in return. So if you’re bothering with the hassle of putting your life savings into a share or property, wouldn’t you want to make sure that what you’re doing is in your own best interest? And by best interest I mean the sudden shower of dollar signs you can potentially receive by making a smart investment.
How does one go about making a smart investment? Well, lucky for you I’m here to help aid you in your desire to see the dollar signs in that crystal ball as clearly as the moon in a clear night sky. So here we go: 5 things you need to keep in mind before jumping the gun.
#1) Consider an Effective Mix of Investments
A great way for an investor to protect against significant losses is by including asset categories with investment returns that fluctuate under different market conditions within a portfolio. Historically, the returns of stocks, bonds and cash have not moved up and down simultaneously.
Poor returns are typically caused by an imbalance of market conditions in the sense that if one asset category thrives the other will be mediocre at best or below average, but by taking initiative and investing in multiple asset categories you will effectively reduce the risks of losing money because if one asset categories investment return plummets, you’d have ground to counteract your losses in that specific category with better investment returns in a different category.
This means that portfolio of yours’ overall investment returns will have a more consistent, and essentially, a sexier flow–if you will. If you don’t include enough of these types of risks in that portfolio of yours, then your investments may suffer and you may not earn a large enough return to meet your goal. For this reason, asset allocation is extremely important because it has a huge impact on whether you will achieve your financial goals.
#2) Create a Personal Financial Road Map
Sitting down and taking a level headed and honest look at your financial situation is essential for any investor. The first step is to figure out your goals and risk tolerance either on your own, with a colleague or you can even hire a professional to help you out. The second goal is to get the hard facts about saving and investing your money and follow through with a smart plan, this will allow you to establish financial security over the years and relish the benefits of controlling your finances.
#3) Create an Emergency Fund
If you plan on becoming an investor, you will most likely be taking a lot of risks. Yes those risks can potentially mean big bucks, but just as well there’s another side to the coin–and that’s when it essential to have those rainy day funds in your account–an account used strictly for emergencies like sudden unemployment or a miscalculation in an investment decision.
It may demand a lot of discipline to not invest that extra money into anything but your own security, but just knowing that you are safe will cause you to make more bold and–hopefully–fruitful decisions, because you will know for a fact that if you come up short, you’ll still have ground down the line.
#4) Avoid Circumstances that can Lead to Fraud
Scam artists may be more well informed then you realize, which is why before you invest in a product you would want to scan a variety of unbiased sources to ensure that what you’re investing in is legitimate. Often times these fraud artists will masquerade a highly publicized news item to reel in potential investors and make their opportunity sound enticing. Talk to family and trusted friends and get a third parties honest opinion before committing to any investment.
#5) Re-balance Portfolio Occasionally
Re-balancing means to return your portfolio back to its original asset allocation mix. By doing this you will ensure that your portfolio doesn’t over emphasize more than one asset category, returning your portfolio to a comfortable risk level. Although you can re-balance your portfolio based on your own personal calendar or investments, many experts may suggest that investors re-balance their portfolios on at a scheduled time interval, such as every four months.
Other experts may recommend re-balancing only when the relative weight of an asset class increases or decreases more than a certain percentage you’ve previously identified. This method will be a lot less of a hassle for the unpunctual, as your investments will tell you when to re-balance and not the calendar. Whatever the case, the re-balancing method is best used in moderation–or at an infrequent basis.
So it’s time to Invest is it? Well, lucky for you there are tons of ways to ensure you get a big return. Have you had any luck in the past reeling in the dough? Share with us how you did it!