The recent economical crisis, in combination with the ever-increasing rate of progress the world has entered, both make a strong impact on one’s investing decisions, meaning that they now have even more significance than ever, and the consequences of a bad (or a good) one are now at a peak of extensiveness. In these kinds of circumstances, investing properly can, and will save your business, but do it quickly and somewhat recklessly, and you might find yourself losing serious amounts of capital, or can go entirely broke in a matter of days, sometimes even hours. So, before you make any decisions, be sure to consider these 7 areas of importance.
1. Make a personal financial plan
Before making any big (or even seemingly small) decision, you should take an honest look at your financial numbers and capability, and that especially goes for those who haven’t made any kind of financial planning yet. Figure out the exact extent of your possible investment, but also its risks and consequences in the case of failure, and in comparison with your current financial status. Keeping these three aspects of investment in sight at all times is crucial, if you want to ensure that you’re making a good financial decision. Of course, a professional financial consultant can offer a useful helping hand with this part of investment.
2. Figure out how much you want to risk in the first place
Every investment comes with a certain degree of risk. To make things more complicated, it’s the ones with a high degree of risk that can bring some serious profit, almost like betting on sports. Make sure you rebalance your budget orderly so that you may know how high a risk you can afford to put yourself into. So, make a, for example, system of risk evaluation, giving risk grades to particular investments, and use the same system to evaluate your own financial capacity. If the grades show that the risk is below your capacity, than everything is ok. If not, think twice about making that particular investment. Again, the presence of a professional consultant is advised.
3. The Timing
Nowadays good timing means half a victory, in almost any field of life. Investments are no exception. With the world economy becoming so unstable, as it has been for a couple of years now, proper timing gives a huge boost to any trader’s profits. On the other hand, improper timing can prove costly in such turbulent times. To improve your chance of proper timing, always consult a person trained in marketing.
4. Consider mixing your investments
By including asset categories with investment returns that move up and down under different market conditions within a portfolio, an investor can help protect himself against significant losses. Historically, the projected and realized returns of the three major asset categories – stocks, bonds, and cash – have not fluctuated at the same time. Market conditions that cause one asset category to do well often cause another asset category to have average or poor returns. By investing in more than one asset category, you’ll bring down the risk that you’ll lose money, and your portfolio’s overall investment returns will have “a smoother ride”. If one asset category’s investment return falls, you’ll be in a position to compensate for your losses in that asset category with better investment returns in another asset category.
In addition, asset allocation is of significance because it has a major impact on you meeting your financial goal. If you don’t introduce enough risk in your portfolio, your investments may not earn a large enough return to meet your goal. For instance, if you are saving for a kind of a long-term goal, like retirement or college, most financial experts agree that you will, probably, need to include at least some stock or stock mutual funds in your portfolio.
5. Diversity can mean a lot
One of the most important ways to lower the risks of investing is to apply a certain amount of diversity to your investments. It’s, actually, common sense: don’t put all your eggs in one basket. By picking the right group of investments within an asset category, you may be able to put a limit to your losses and reduce the fluctuations of investment returns, without sacrificing too much potential profit.
You’ll be exposed to significant investment risk, if you invest heavily in shares of your employer’s stock, or any individual stock. If that stock does poorly, or the company goes bankrupt, you’ll probably end up losing a lot of money (and perhaps your job).
6. Have an emergency fund
An emergency fund is a nice thing to have lying around at any time, let alone when in the investment business. This is used to cover some inevitable kinks in your plan, or any other kinds of emergencies. Some people keep up to six of their monthly installments to wait for them if that “rainy day” ever comes.
7. Make sure you pay off your high interest debts first
This is another logical aspect. The higher the interest, the less time it needs to build up debt. So, let the interest rates dictate the sequence of your debt paying, since those with lower interest rates can really wait some time before it gets serious.
Mind you, there are a lot more tricks to this trade than described here, so, yet again, it will do you good to always bear in mind that hiring a professional consultant is definitely the way to go, if you want to have any chance at investing properly, other than a sudden stroke of luck.
Damian is a blogger and marketing consultant for property investing in Australia project. He mostly writes about business and investing opportunities giving useful tips potential investors.