The first place to start when investing is to establish investment goals. Once you have an idea of what objectives you want to achieve you will gain a clear picture of the types of investment you will need to make to get you there. Setting up investment goals will help you to know what you want out of your investments.
Look at your goals in terms of short, medium and long-term. Anything short-term will have a time frame of up to two years whereas medium-term tend to be three to ten years. Long-term is over ten years. Remember to give your goals a date to be achieved by and, as they are financial goals, give them a dollar value. Make sure that they are specific and are your own desires. You are likely to have a mix of time horizons and knowing that investments have varying degrees of risk and return you need to understand your goals in order to match your investments.
Your short-term objective may be take a special holiday in two years. Once you know how much you need to save for your trip you can work out how much you need to put aside each payday. If you are paid monthly work out the sum required by dividing the total by 24 (months). A short-term goal requires you to invest conservatively as you want to make sure that the money is available when you are ready for your trip. The investments you can make here are bank savings account and bank deposits even though the returns are likely to be minimal.
A medium-term goal may be to save a deposit for a new home. Because the time frame is more extended you can accept more risk in your investments. Your actual investment strategy will relate to your risk profile but is likely to be more risk averse than a longterm investment. After all when you find the house of your dreams you will want the money to be available. Growth assets are more likely to help you achieve your goal so a good compromise would be what is called balanced investing. A balanced portfolio is 50% growth and 50% income.
Long-term goals will mean you can take on more risk as you have a longer time to recover from market drops. The caution here is not to take your funds out when markets do drop as you will lock in your losses…this a a knee jerk type reaction. Ride it out unless there is good reason to believe the investment is not a good one and you are not in the right place. It is best to seek the advice of a Financial Planner.
You will need to find out what funds are available to invest from your income so a good start is to do a budget and make your goals part of your budgeting. To achieve your investment goals it is important to understand what you want out of your investments and make your choices accordingly.