Tips for Choosing Where to Invest
Investing is not just for the wealthy – really, anybody can begin doing so, as long as they have carried out thorough research and are equipped with the right knowledge. We outline several tips that people should take on board when deciding where to invest their money.
Set Your Goals
You should start by thinking about exactly what you want to achieve from your investments, including what your goals are and whether you are financially ready to start investing.
Investments all come with risk attached – some are high-risk, while others carry a relatively low risk factor. As such, you need to establish your risk tolerance from the outset, which will determine how much risk you as an investor are willing to take and what investments to make as a result.
Establish Your Time Frame
Before making investments, you should have a time frame in mind for when you want to see a return on investments. Time frames will differ between goals and will also vary according to the type of risk you decide to take on.
For instance, if your goal is to save up enough money to put a deposit down on a property that you are hoping to purchase in the coming years, investing in funds or shares is not wise, since their value fluctuates. In this case, savings accounts like ISAs are advised.
However, for people saving up for pensions in their later life, short-term setbacks in investment values do not matter as much and so long-term investments can, in fact, be beneficial.
Create an Investment Plan
After you have determined your goals and the amount of risk you are willing to take, the next logical step is to create an investment plan, which will help identify which types of investment are suitable for you.
Most first-time investors will want to begin with low-risk investments like cash ISAs, after which they can steadily begin to add medium risk investments to their portfolio, if they feel comfortable doing so.
High-risk investments should only be considered once you have investing experience and have built up good lower and medium risk ones. With higher risk types, you must be willing to accept that you are far more likely to lose the money you have invested.
Diversify Your Investment Portfolio
Diversification means spreading money between several different investment types. This is a good way to reduce the risk of losing money, since you are essentially spreading the risk between diverse investment types which typically won’t move in the same direction.
How Involved Do You Want to Be?
It is important to decide how involved you want to be and if you want to personally make investment decisions. For people who want to be active investors and frequently make their own decisions, purchasing individual shares might be the most appropriate. However, they must fully understand the risks involved before doing so.
For those who would rather take a less hands-on approach, or where they might have a smaller sum of money for investing, investment funds are usually more suitable. This type of investment means your money is pooled together with several other investors and spread across investments.
A professional financial adviser can help you determine what types of investment or funds to choose from if you are feeling a little unsure, which is natural.
Above all, remember the age-old saying – only invest that which you can afford to lose!
FundCalibre is an investment fund research company based in the UK, providing fund research for investors and professionals alike.