It Starts with a Strategy: How to Go About Investing Money
What Are Your Goals?
Investing is something that no one should ever just jump into without developing a strategy. At the very least, you'll need to evaluate your finances and goals. You'll also need to take the time to research products and companies. In addition, consider setting aside money for saving, explore dollar cost averaging, diversification and think about hiring a financial advisor.
Evaluate Your Financial Picture
Define your financial portfolio by listing all your assets, bonds and stocks. Consider your portfolio before making new investment decisions.
Investment Goals
Surprisingly, many new investors fail to identify their short and long-term goals when it comes to investing. Your goals can have a direct relationship to the types of investments you choose and how long before you may see a profit.
- Investing for a college education or a down payment on a home are both relatively short-term goals that could be reached in as little as five years. Consequently, the best approach might be to choose conservative money market accounts.
- If you're young, long-term investments like retirement could be approached by making aggressive investments now with higher risks and the potential for greater profits. Since retirement is far into the future, you still have time to make up for investment losses down the road.
Research
Consider investing in companies with familiar products that you know and understand. Before making investment decisions, research the capital structure, risk profile, growth rate, net income and revenue of the company.
Investors should also take the time to explore the backgrounds and stability of the CEO and CFO in companies you are considering for investment.
Saving for the Unexpected
It is a good idea to set aside at least six months of income into a savings product to protect yourself against economy fluctuations, possible job loss or poor investments.
Dollar Cost Averaging
Stock is purchased monthly with a set amount of money over an extended period. Consequently, these regular investments will purchase more investments at a lower price and less at higher amounts. Investors use this to offset risks.
Diversification Strategy
Diversifying your investments between a number of different products and investment options helps to reduce risks, which increasing your chances for success.
Consider a Financial Adviser
If you're just beginning to learn about investing and don't understand all the legal and investment terms, it may make financial sense to consider the services of a financial adviser.
By researching, planning and investing over time, you'll be well on your way to meeting short and long-term goals.
