Investing sounds like a daunting prospect - despite knowing that our cash can benefit us a lot more if it isn’t sitting in a checking account!
Lots of first-time investors look for:
Today we're going to scrap that whole line of thinking. Choosing a specific investment product shouldn't be the focal point of our investing mentality.
We need to begin with our goals, financial aspirations, and life plans; using them as the foundation for our investment strategy.
Doesn't make sense? Hang in there; we'll run through it step by step!
Risk is the cornerstone of investment.
You don't need to be a financial advisor to know that every investment, no matter how exciting, carries an element of risk.
There is never a guarantee you will win big, so you need to get comfortable with exposure.
In practice, risk vs. rewards means considering:
If you have a small amount of capital and need to ensure you don't lose it, you’ll want to opt for a low-risk investment.
The worst possible outcome is that you won't make huge returns - but you're not throwing your life savings into a risky investment where they might suddenly disappear down an economic drainpipe.
If you've got a decent amount of extra savings, you might invest it in something a little less certain, but with the prospect of some high returns!
Everyone's investment strategy is different - and it should be.
Don't be tempted to follow some random investment model that you saw on the internet, no matter how convincing!
Before investing, ask yourself:
Once you've got a timeline of your financial plans and a rough idea of the required cash, you're equipped with an essential roadmap to help you make decisions around investing.
Now that we've got a plan, it's time to put it into action!
There are millions of savings plans and investment funds. The basic principle is that:
If you're after a lower-risk option, the high yield savings options may be your best bet.
Since you're simply putting cash into a savings account, not into the unpredictable stock market, your risk is near zero.
However, you can receive up to 25 times more interest in a high-yield account than the US average.
It’s a stable way to increase your savings without needing to watch the markets like a hawk for signs of impending doom.
We've talked about timelines, but let's clarify what that means:
If you don't need to make an instant profit and are looking at longer-term wealth building, it's still important to consider the risk vs. reward.
For example, a medium-term investment portfolio is generally pretty conservative. You could think about structuring your portfolio something like this:
That way, you're aiming for high returns but aren't hedging your entire investment on stocks.
Longer-term, you're probably going to be more robust in your investments, looking for stocks that will provide decent returns in the years to come.
Data shows that the average 10-year stock market return is 9.2%.
Thus, a 90% stock market allocation isn't any good for immediate goals.
Still, the stock market might be your best if your long-term goal is to ramp up your wealth for retirement.
In summary, your investments depend on the time you are willing to wait before getting profits in your pocket.
Start by building your investments around your future financial plans, that way you can blend short and long-term investments to align perfectly with your aspirations.