The concept of investing has existed for decades, but recently, more and more people, especially younger generations, are looking for ways to invest and save for their future. However, this isn’t as easy as it sounds.
There is a lot to learn, the types of investments you can make, the types of trading you can do, where to invest, when to invest, when to take profits, and how to spot risks. These are all factors in deciding which are the best investments for your needs.
Your Timeline
Before even choosing how much you want to invest and where you want to invest it, you need to decide how long you are going to go without touching your investment. There are many options that involve investing, waiting for a spike, and then pulling out your profit, and then there are many options that involve leaving your investment to work for years, sometimes decades depending on what it is.
While waiting for a profit and then withdrawing your investment may be great in the short-term, the power of compounding can not be ignored. You want to leave your money on long enough for your profit to make profit, and then for that to make profit etc.
There is far more benefit in leaving your investments for a few years, as this compounding effect is much bigger than you might think. You start making money on your profits, who wouldn’t want that?
What Are Your Needs?
This is a question that is probably best answered with the help of a financial expert, but you need to figure out what you want out of your investments and what you need them to do. Are you looking for short-term gain, or a long-term gain that is mainly for your children.
There is also the factor of how “hands-on” do you want to be, are you someone who wants to work their money every day, buying and selling, or do you just want to leave it to do its own thing?
This even factors into fund manager choices. Do you want an income fund manager who will choose to invest your money into strong companies that have consistent and regular returns? Or do you choose a growth fund manager who picks companies that have far more long-term growth prospects?
Risk
Risk is one of the biggest factors in investing that you need to consider. It comes down to one simple question, how much money are you willing to lose? As in, if your investment failed tomorrow and you lost everything you invested, will you be ok with that?
Not ok in the sense that you’re happy about it, but more about the fact that losing that money doesn’t make you go bankrupt or you lose your house or something major like that. All investment experts will always mention the idea that you only invest an amount that you are willing to lose.
The risk component has been amplified over the past few years with the advent and exploding popularity of cryptocurrencies. While they can be incredibly profitable, they are also incredibly risky.
Considering more and more people are veering away from more traditional investment channels and heading towards crypto’s, it is important to remember that right now, cryptos are probably the most volatile investment you can make.
Billions of dollars can be wiped from the market overnight, and while this happens in the real world too, these fluctuations are far more common in the crypto world. Therefore, if this is the route you are wanting to go down, being aware of risk vs reward is more important than ever.
Diversification
There is a way to mitigate risk though, and that is through diversification. Simply put, diversifying your investments is ensuring that you have multiple, different investments. As in, you have stocks, bonds, maybe some property, cryptocurrency etc.
Diversification is beneficial in many ways, but the two most important reasons are minimising risk, and also being able to take more risk. The first one is simple, you don’t have all your eggs in one basket, therefore, if one investment opportunity is a dud, your whole portfolio isn’t ruined, and you have a safety net to protect you.
The second reason, being able to take risks, is afforded to you because of this safety net. If you are wanting to take a chance on a cutting edge company, or a new crypto coin with huge potential, you are able to, and once again, if you fail, your safety net will catch you.
In this day and age, there is no “safe”investment”. The current pandemic has proven that even huge, established companies can fail, and those once incredibly safe shares disappeared almost overnight. Therefore, spreading your money and investments is key, and you are also able to do it from the get-go.
As you can see, there are many factors involved in choosing the best investment for you and your money, however, with a bit of knowledge and time, you can figure it out, and you can also set yourself up for success right off the bat, and if you need help, there is always an expert waiting.
