How many of you are acquainted with the term Investment? I hope almost all of you. Investing is actually an act of allocating funds to an asset or committing capital to a business project or real estate with the expectation of an income or profit with a long term benefit. In terms of Economics, the right investments are basically good purchased and kept for future use to acquire wealth or to be sold at a higher price for profit.
How To Invest?
Now as you have already an idea what investment is all about, the next thing which comes to one’s mind is “how to invest”. It depends on what kind of investor you actually are- whether you want to invest personally or would prefer to have the whole thing managed by a professional. Though professional money management is quite expensive, as you may have to pay the fund manager or the financial adviser many investors prefer them as they are capable of making investment decisions and trading to an expert more efficiently than the Do-It-yourself kind of investor.
Understanding Investment – The Right Choice
The expectation of a return is the core matter of investing. Risk and return go hand in hand in investing; low risk means low expected returns while higher returns are accompanied by higher risks. Low-risk investments such as Certificates of deposit, bonds, etc, are higher on the risk scale. Stocks or equities are even riskier. Commodities and derivatives are considered to be among the riskiest investment. Investing in land or real estate can prove to be really fruitful if planned and executed wittily.
Tips For Choosing Right Investments
The key steps to help find an investment that’s right for you are as follows:
- Review your needs and set goals accordingly
- The longevity of the investment plans
- Full proof investment plans
- Check the possible charges to be involved in investing
- Investments to avoid
- Review periodically
- Key investing steps
Before making an investment plan, sit and take an honest look at your entire financial position. Be well aware of your risk tolerance. Investment doesn’t guarantee profit all the time. Even if you purchase your investments through a bank, you can lose your principal which you invested initially. Careful investment in asset categories with greater risks rather than restricting your investments with less risk can bring more profit. On the other hand, solely cash investments may be appropriate for short-term financial goals. The main concern of an investor is the market conditions.
To accommodate investors who prefer to invest with a particular goal such as retirement, they may go for a ‘ lifecycle fund’ which is a diversified mutual fund that automatically shifts towards a more conservative mix of investments as it approaches a particular year in the future. One of the most important ways to restrict the risks of investing is to diversify your investment. To avoid heavy loss, smart investors create and maintain an emergency fund to cope up with the situation.
Again, by making regular investments with the same amount of money, you are likely to buy more of an investment when its price is low and less of the investment when its price is high. Another important point to keep in mind before investing is that you ask questions and check answers with an unbiased source before you invest. Always talk to your trusted friends and family members before investing.
Protect Yourself From Fraudulent Activities
Avoid unsolicited investment offers. Before investing don’t forget to check the FCA register and warning list. Seek impartial advice before investing. A good rule is to start low-risk investments such as Cash ISAs. Add medium-risk investments as unit trusts later on if you feel confident about taking ample risks for profit. Ask valid explanations for all the charges to be paid before committing your money to avoid being a fraud. At least once in a year, keep track of how your investments are performing by revising the regular statements.