It is possible to begin investing without even the slightest bit of knowledge or thought as to what you are doing. You could dive right in and get investing now – Choose some companies, maybe add a fund or two and your money is invested. But is that really the strategy to success? It will likely lead to failure before you have really started. As you begin investing, it may be worth contemplating a number of ideas to help establish a much clearer pathway to success on your journey. We have put together a number of thoughts which can help you gain a fundamental understanding of what to consider when investing.
What Factors to consider when Investing:
The first thing to consider when investing is the intent of your investing journey. Do you have goals you wish to achieve which may be helped by invest for them? It could be you are simply investing to grow your wealth, which is a suitable aim in itself. However, it is worth deciding upon some goals you may have in the future, as they could help you stay on track.
Upon deciding those goals, you’ll want to determine if they are short, medium or long-term goals. You will also want to aim for a suitable return which you want to earn in order to achieve those goals. Deciding these factors will enable you to choose suitable investments which work towards your goals. Choosing investing goals will allow you to be working towards something, whether that is a life event, a specific amount or towards your retirement. Whatever it is you choose to invest for, it will allow a much clearer focus on your investing journey.
Investing is typically intended to be for the long term, which will enable much more solid consistent returns over time, as you give your investments the chance to grow. This is investing, not trading and therefore, you should be prepared to sit on your investments, to give them time.
However, you may have a specific time scale in mind, in which case you will want to decide when your investments are for. Similar to choosing appropriate goals, it is important you match your investments with your timescale.
If you are aiming for a shorter time frame, you may want to take on riskier investments. For the long term you may want to choose safer investments which have shown consistent yet perhaps less growth over time. Deciding on your time scale will enable you to put your money into investments which suit you.
It is also possible you may decide to place your timescale around your investments. Following the common advice of ‘Buy low, sell high’ could mean your investments are there until you’re ready to sell, in which case you aren’t as restricted and have freedom to cash in when it suits you. You don’t have to commit to a timescale, it is all depend on your goals and aims of investing.
Risk and reward are the two fundamental concepts in investing, as every investment revolves around these two ideas. When you are investing, you will need to decide your level of risk when it comes to investing, and the rewards you are hoping to accomplish.
When choosing your investments, you will want to determine how risky they will be, and if the reward is enough to take on that level of risk. The higher risk you take, the higher your reward could be, but the greater the potential to lose your investment.
When investing you will want to choose appropriate investments for your level of risk. For those who are fearful of the risk, you may want to consider if investing is right for you and choose the most suitable options for your money. However, you may be much more risk averse and focus on choosing investments which have the largest possible returns despite having the greatest potential to fail.
You may also want to consider your goals, and if the investments will allow you to achieve them based on risk/reward. For example, you could choose to reduce/increase your level of risk to aim to meet your goals within your timeframe. It all depends on your situation and what works for you. When you consider investing, it is all about understanding the risk/reward trade off and choosing whether to be conservative or adventurous within your investments.
When it comes to investing, you will need money. Investing is all about having money available and so it is important that your personal finance is in order before you begin investing. Assuming you are ready and waiting to invest, you should consider the following:
· Access to cash
You will need to know if you need access to your cash. If your money is tied up, it simply won’t be available, and you won’t be able to gain access to it as soon as you need. It is therefore key to understand your financial situation. That way you can determine your need to access to cash and if viable, you can consider investing it.
· Amount to invest
When you decide to invest, you will want to know just how much you are going to invest. Also is that investment going to be a one off, or is it going to be regular investing. If you are going for an initial investment, do you need that money, and is it okay for you to invest that amount. However, you may plan to be more regular in your investing, you may want to consider setting a suitable budget, which allows you to work towards your aims. Understanding how much money you have to invest will allow you greater freedom in your financial decisions and can lead to greater success.
Knowledge and Research
As you begin to identify where you invest your money, you will want to consider your investing knowledge and how it will impact the specific choices you could make. Understanding how your money is being put to work will enable you to really know if the investment is right for you. Additionally, what do you know about investing? Do you know if the choice you have made is worth the risk, and how likely is it your investment can succeed? This will enable you to make investments which are suitable to your level of understanding.
And if you don’t have the knowledge, you will want to consider the time and effort you wish to put in to researching. Investing can be considered a journey and so it is important to continually learn and grow.
If you want to understand each and every investment, then you will have to put the time in to choose your investments. Alternatively, you may wish to simply invest your money and forget about it. There are options for both, but it is always useful to have a basic foundation to your investing knowledge. It can boil down to the question of ‘how much work are you willing to put in to understand your investments?’ The more you know, the greater chance that you will succeed.
Depending on how you wish to invest, you will want to decide just how involved within your investments you wish to be. Investing can be active or passive depending on the strategy you choose.
It can depend on the involvement you wish to have when investing. Choosing to be an active investor means constantly watching over your investments, buying and selling whenever you have decided it is the correct time to do so. If you want to be active in your investments, it will require a lot more research and a greater understanding to your chosen investments. However, it allows greater control, as you can invest when is necessary and use your money as you wish.
Alternatively, you can invest and let it sit. You would put your money into an investment which you don’t have to worry about. This investment is then given time to grow, as you get on with other things in life. It all depends on whether you have that need to be choosing what your money is going towards or deciding on investments which others have chosen on your behalf. There is no correct answer, only a matter of choice.
Investing may seem like a simple concept, and essentially, it is extremely easy to do. It doesn’t have to be complicated and we don’t aim to make it that way. However, there should be a number of considerations which should go into your investing decisions.
Creating rational goals which work towards a timeline suited to you allows you to make the ideal investments to match your ambition. It enables you to understand your level of risk and the rewards you may seek.
You will need an understanding of your financial situation to know if investing is viable to you in your current situation. And when it finally gets to the point of investing, are you able to comprehend what you will be investing in? Additionally, how will you want to be involved in your investing journey: either being active in your investment decisions or watching as your investment without any further input from yourself.
These are just some ideas of what to consider when investing, and we have barely scratched the surface. However, these considerations really should provide you with a solid foundation, which can help create a solid and focused investment plan.
There are many complexities which come with investing so it is important to prepare as best you can. You should never stop learning and aim to ensure you give yourself the greatest chance of a brighter future, which you start to create today through investing.