Here are basic and essential steps to follow in choosing the right investment for your specific needs and goals:
- Assess your personal needs and goals
Take ample time to consider why you want to invest and what you want to get out of it. Since nobody knows you better than yourself, your goals and your needs, as well as your tolerance for risk, start by analyzing your daily expenses and determine where you can get the money to invest. Online apps can help you do this money fact-finding process.
- Decide how long you want to invest
When do you need the money you will invest? Soon or much later? Depending on your goals (a home purchase will differ from a bike purchase) your time target will vary and also influence the degree and form of risks you can handle. Here are examples:
Saving for a deposit to buy a house in two or three years will not suit investing in shares or funds since their value fluctuates. Opt for a cash savings account, such as Cash ISA.
Let us say you want to set up a pension fund after in 25 years, investing in short-term assets will not do; so choose long-term options. You will end up better off with long-term investments, except for cash savings accounts, since you can level out inflation and thus achieve your pension objective.
- Choose an investment strategy
Having set up your needs and goals and considered the risks involved, make an investment plan to assist you in determining the kinds of products that match your plan.
It is always a safe and smart move to invest in low-risk investments, such as Cash ISAs. Next, you may augment medium-risk investments, such as unit trusts which have greater volatility. Go for high-risk investments only if you already have a solid portfolio of low and medium-risk investments. Even so, the risk will be much higher and you must consider the possibility of losing your money.
- Choose to diversify!
It is common knowledge that to enhance your success at investing, you must also increase the risk you must take. However, you can control and increase the interaction between risk and return by distributing your over a broad selection of investment choices whose prices do not follow the same pattern. This is what we refer to as diversification. Its purpose is to level out the gains and also enhance growth, as well as decrease the general risk that your portfolio can take.
- Choose your DIY level
Before buying any stock, seek professional advice to fully understand the product.
It all depends on how much time you want to devote in investing:
For do-it-yourself-ers who want to savor the moment of making decisions themselves, try buying individual shares; however, make sure you comprehend the risks.
For people with no time to spare or are not hands-on or for those with little money to invest, the common option is investment funds, like unit trusts and Open Ended Investment Companies (OEICs). Through these products, your money is lumped with other people’s money in purchasing diverse investments.
Seek financial counsel if you are not certain as to the kind of product will fit your needs or which investment funds to select.
- Know the fees involved
Buying stocks directly, such as individual shares, will require paying a stockbroker service fee. On the other hand, in buying investment funds, you will pay charges to the fund manager. Also, seeking the help of a financial counselor will involve paying fees.
All those fees and charges will vary according to the company involved. Inquire first how much the fees are before making any final buying decisions. Although higher charges may mean higher service quality, assess whether the charges are reasonable and whether such service can be had at a lower fee rate somewhere else.
- What to avoid in investing
Keep away from high-risk assets, except if you comprehend quite well the risks involved and are willing to handle them. As mentioned earlier, take on higher-risk products only when you already have solid low- and medium-risk investments.
There are, of course, certain investments you must totally avoid. Seek professional advice regarding this.
- Monitor your investments regularly – but do not time the market
Investigations show that those who invest and monitor their investments daily are apt to buy and sell too frequently and derive lower gains compared to those who let their money grow over the long haul.
Yearly reviews are sufficient to show you over time how your investments are performing and still allow you to adapt your savings accordingly to attain your objective. However, you will have to read periodic statements to obtain an educated perspective of things. To help you do this, click on the list of tips below.
Remember, avoid the inclination to react wildly each time prices fluctuate abnormally. The veteran investor knows markets can fluctuate unpredictably over time; and sticking it out allows one to smooth out the movements.