Financial security and freedom are an individual’s biggest life goals. Being financially independent helps people find the right balance between different aspects of life. While “Money can’t buy happiness” is a common saying, having none otherwise puts your life in demise.
Working a regular, day-to-day job is the standard way of earning money to meet your daily demands. But, to build wealth, you’ll need something that can generate passive income, and it exists in the form of investments.
As enticing as investments may sound, they’re undoubtedly challenging to start, manage, and grow, especially if you’re still a newbie investor. Before putting any of your assets on the line, consider these four things when making investments:
- Research and Learn About Investment Types and Paths
Kicking off your investment journey without any knowledge is like entering a war zone with no weapons and armor. If you don’t know all the possible investment opportunities you can take, you won’t be able to pick the best one that suits you best.
Thus, explore as many investments as you can before investment planning. Some of the most popular investment options today include stocks, bonds, cryptocurrencies, mutual funds, exchange-traded funds, and real estate, to name a few.
If you’re interested in a specific investment path, make sure to research thoroughly about it before committing, as an investment may take a minute to learn, but a lifetime to master. For instance, if you’re looking into investing in gold, gather reliable information from sites such as Learn About Gold to guide your gold investing journey.
- Determine Your Risk Appetite, Tolerance, and Other Essential Investment Factors
Besides learning the knowledge and technical aspects of your chosen investment, it’s also crucial to know yourself as an investor. While there may be ideal investment paths, there’s no one-size-fits-all investing approach to every investor, or everyone would be successful right now.
Instead, assess yourself as an investor and ask questions. How far are you willing to risk investing? Will you be investing for the short-term or long-term? Which markets will you navigate?
The risk tolerance levels you can accept to achieve your investment goals refer to your risk appetite, while risk tolerance defines the maximum risk that you’re willing to take for every type of investment risk. Understanding your risks aligns with an investment’s rewards. Generally, investments with higher rewards pose higher risks, while low-return investments have lower risks.
Moreover, have a defined plan describing other factors of your investment, such as your investment capital, time horizon, liquidity, tax implications, inflation rates, and market volatility.
- Find Your Investment Strategy
The uncertainty of investing is what makes the investing journey exciting. In the investing landscape, you won’t always win. There are instances where you’ll lose money or not grow your money at all. Finding your investment strategy will make the difference whether you lose or win on your investments.
Every investment strategy shares the same sentiment, which is to minimize risks while maximizing returns. As you’re still an investing beginner, you can choose from the most common investment strategies:
- Growth investing
- Buy-and-hold investing
- Value investing
- Momentum investing
- Dollar-cost averaging
- Diversify Your Investments
Perhaps the best and most tried-and-true approach to investing is not putting all your eggs in one basket. For instance, if you invest in cryptocurrency because of its popularity and ROI promises, don’t allocate all your investment capital in crypto alone, as you’re risking losing everything in a split-second.
Alternatively, branch out your investment capital into different types of investments. Portfolio diversification minimizes your risk and maximizes your investment returns, which is another investment strategy, as each asset reacts differently according to its market.
When diversifying your portfolio, choose assets with low or negative correlations. If one asset class moves down, other asset classes will counteract it. Also, you can consider investing in assets with regular dividends, like fixed-income and index funds, to shield your portfolio.
Investments aren’t all about investing your money but also your time, patience, and efforts. Investment returns aren’t planted and harvested overnight. While you’re still young, it’s best to start building your wealth and investing from left to right.