It is never too early to start investing because it is the smartest way to secure your financial future and to begin letting your money work for you.
Contrary to what many may think, investing is not only for people who have truckloads of spare cash; you can get started investing with just a little bit of money and learning from the experience.
Today, there are myriads of investment vehicles and financial instruments available, as a novice investor you should stick to the basic rules.
No matter how much money you are investing or what securities you are buying; ensure that your investment portfolio is diversified. This is a very importance strategy which most people who got their hands burnt in various markets in the past were found to have ignored.
The message is that clarifying your current situation and your future needs for capital, as well as your risk tolerance, will determine how your investments should be allocated among different asset classes.
In practice, to cushion the risks associated to investing, it is far better to invest a sum of money in say twenty different stable companies than in just a single company you perceive to be doing well; this way, the investments hedge against each other and keep you from losing a lot of money based on one company’s poor performance.
“In today’s financial marketplace, a well-maintained portfolio is vital to any investor’s success. As an individual investor, you need to know how to determine an asset allocation that best conforms to your personal investment goals and strategies. In other words, your portfolio should meet your future needs for capital and give you peace of mind. Investors can construct portfolios aligned to their goals and investment strategies by following a systematic approach,” said Chris Gallant, a personal finance expert.
Gallant believes that ascertaining your individual financial situation and investment goals is the first task in constructing a portfolio. “Important items to consider are age, how much time you have to grow your investments, as well as amount of capital to invest and future capital needs. A single college graduate just beginning his or her career and a 55-year-old married person expecting to help pay for a child’s college education and plans to retire soon will have very different investment strategies,” the expert added.
Once you have determined the right asset allocation, you simply need to divide your capital between the appropriate asset classes. The more risk you can bear, the more aggressive your portfolio will be –for instance devoting a larger portion to equities and less to bonds and other fixed-income securities.
Conversely, the less risk that’s appropriate, the more conservative your portfolio will be. The main goal of a conservative portfolio is to protect its value. A moderately aggressive portfolio satisfies an average risk tolerance, attracting those willing to accept more risk in their portfolios in order to achieve a balance of capital growth and income.
Another important factor to take into account is your personality and risk tolerance. “Are you the kind of person who is willing to risk some money for the possibility of greater returns? Everyone would like to reap high returns year after year, but if you are unable to sleep at night when your investments take a short-term drop, chances are the high returns from those kinds of assets are not worth the stress,” the expert indicated.