Six Point Guide to Smart Investing

People invest with particular goals in mind, whether short-term or long-term. Whatever goals you have in mind, successful investing requires you to make decisions based on your needs, personal circumstances, and financial goals. To come up with an investing plan, here is a six-point guide that may prove to be useful:

  1. Know yourself. There are no two similar investors. We have different goals set, varying time frames to accomplish them, and a different risk threshold. When it comes to investing, risk is not altogether bad. Greater risk may present opportunity to reap greater profits in the long run. The first important step in investing is to find your comfort level between risk and reward and evaluate your investment time frame. To know your “investor” self, evaluate your risk tolerance, investment knowledge, objectives, gross annual income, and time horizons.
  2. Start early. The simplest way to make your money work is to maximize “compounding,” or the “process of money multiplying itself by earning a return on the return.” CIBC Securities, Inc computes that when you start a bi-weekly contribution of $93 at 25 years old, and assuming a 7% annual compounding rate, you will make $500,000 at the age of 65.
  3. Invest regularly. It is advisable to make small investments on a monthly or weekly basis rather than large contributions. Investing smaller amounts on mutual funds over long periods can also reduce average costs compared to sporadic purchases.
  4. Create a diversified portfolio. Spread your assets across a broad range of investments. This reduces risk, shields your portfolio from downturns, and delivers higher potential returns over time.
  5. Monitor your portfolio. Examine your portfolio at least once a year and make decisions.
  6. Pick investments suited to your time frame. It is important to choose investments depending on whether they are to be accomplished on the short-term or long-term basis. Conservative investments are fit for short-term goals, whereas, a diversified, growth-oriented portfolio is appropriate for long-term goals.

Leave a Reply

Your email address will not be published. Required fields are marked *