You don’t need to be a business mogul, or even be wealthy, to start investing. Most people do shy away from the thought of stocks and shares because they associate them with risky financial activities as a hobby for the rich.
But they can be safe and profitable too. You can, of course, stick to savings accounts and housing societies but do keep an open mind. Investing in stocks and shares doesn’t have to be in the form of high-end gambling, scams or bubbles.
The truth is, saving without investing carries its own risks. A savings account has minimal interest rates. During times of inflation, the cost of living rise. The interest rate on your savings does not, which means your purchasing power falls. There is no danger in saving but it does not guarantee your money’s value. Nor will it increase its value.
How to invest. There are some guidelines you should follow before making your first investment to safeguard yourself from risk.
Be cautious. But not too cautious.
Remember how we mentioned that, in the long term, equities are more profitable than savings? That’s why excessive caution can be harmful; refusing to invest in potential can often be a disadvantage. At the same time, it’s important to do your research and not make any blind investments.
Figure out what kind of investment you want to make.
Corporate and government bonds, for instance, are reliable. They’re regarded as low risk than equities. If you’re a naturally cautious person by nature, and want steady returns as opposed to big returns, consider investing in these types of bonds.
Don’t put all your eggs in one investment.
Splitting your funds is important. By investing small amounts in a number of companies, asset classes or global markets, you avoid losing all your money in case one investment turns out to be bad egg as it were.
As a first time investor, you should also consider investing through a joint fund. It will let you invest in various assets without the risk of making your own investment decisions.
Know your funds.
There are thousands of different kinds. Passive or tracker funds, for example, measure global stock market indices. They are run by computers which means they are less expensive to invest in. A fund supermarket is also something you may want to consider. It lets you keep track of all your investments from one place. The variety of options available to you means you need to do your homework in order to find the right one. Another important thing to keep in mind is that making investments at regular intervals minimises the risk of loss.
Be prepared not to touch the money you’ve invested for five years, or ten, or more. Safe investments do take time to give you results but then again – they’re safe.
Make annual reviews.
Most people tend to review their investments when markets are up or down. As a result, it often becomes rather an emotional process because it’s done during a fluctuating period. An annual review will help you determine, without drama, that your investment strategy is on track, your taxes are being saved, your income is being protected and your long-term financial plans are still beneficial. Here are some steps you should take during your annual review:
- Making sure that your holdings match your financial goals. For example, if you’re close to getting returns on an investment, stay away from risks or investments aimed at capital growth. If you have years before your returns are due, it’s alright to consider braving the occasional risk – within reason.
- Know your ROI (return on investment) for your existing investments as well as what they are. Unit trusts? Shares? Investment trusts?
- The performance of different investments changes with time so feel free to rebalance your portfolio if necessary. For example, one of your investments might be flourishing and look set to do so. The other might be slowing down. Consider transferring your money to the more successful investments.