Last Updated on Oct 20, 2022 by James W
Investments are great for multiplying your savings and generating multiple income streams. However, to make your money work for you and ensure that your investments go in the right direction, you must learn a little about investing. The more you know about it, the less likely you will be to waste time and money on bad ideas.
It might not be easy as a beginner, but once you begin investing the right way, you will gradually learn more about it. Moreover, there is no one-size-fits-all answer in making investment decisions. The best way to invest depends on your circumstances and goals. However, some general principles can help you make the best choices for your situation.
Therefore, this blog is for you whether you are thinking about investing money or are already in the initial phase. So let’s get into it.
- Define Your Goals
Before investing, you must clearly understand what you want to achieve. For example, are you planning to grow your wealth over the long term, or do you need access to your money sooner? Do you want protection against inflation, or are you more concerned with generating income?
A good financial planner can suggest an investment strategy according to your financial situation. It could depend on your income, family situation, financial health, and even the country’s economy. For example, Australia is a relatively stable and low-risk investment destination because of its stable economy and stronger trade ties with the world with dynamic industries. In addition, its investment markets offer favorable returns and an enterprising lifestyle and workforce that many countries envy. Therefore, no matter what your financial goal is, Australia is a lucrative market to invest in. And you can easily find a financial planner in Sydney who can help you do that.
2. Review Your Investments Regularly
Your circumstances and goals can change over time. Therefore, it is vital to review your investments regularly to ensure they align with your needs. For example, if you have a child about to go to college, you may need the cash you would invest for tuition payments.
Moreover, investments may cost you with an asset’s dropping market value, commissions, advisory fees, expense ratios and custodian fees, etc. Moreover, pulling out of certain markets is wise if you expect them to drop soon. It goes for the stock market, currency exchange, and real estate market. You can consult your financial advisors for expert tips on reviewing and managing your investment portfolio.
An effective way to review and track all your investments is to create a spreadsheet and update it regularly. Use it to list all the information you need to make tweaks to your portfolio. In addition, regularly check the business news that may affect your asset markets.
3. Consider Your Risk Tolerance
Investing involves risk. Your risk assessment will affect your investment choices. If you are risk-averse, you will likely prefer less volatile investments with steadier returns. On the other hand, if you are willing to tolerate more volatility in pursuit of higher returns, you may be more suited to investments like stocks or commodities.
The Australian real estate market is more stable and suitable for an average Australian to invest in, considering the average income. On the other hand, stocks and bonds are good for growing your income exponentially within a short time if you have a high-risk potential. For low-risk tolerance, government-issued bonds are a safer option.
Your financial goals also matter when assessing your risk tendency. Long-term financial gains may call for high-risk and diversified portfolios. Make sure you diversify your asset classes to include low-risk investment options to minimize the overall portfolio risk.
4. Invest Consistently
An essential element of financial discipline is to invest consistently. The longer you keep your investments in the markets, the higher will be the return. Although high-risk, high-return investments for the short term might seem tempting, it is not wise to do it sporadically or whenever you need money. It is because there are chances of losing your money. After all, high risk also comes with high losses. You can cover such losses with long-term stable investments with a diversified portfolio.
Moreover, research suggests that investing in mutual funds for 5-7 years carries minimal downfall chances. It is because the lower or negative returns over the years combined with some positive returns will up for a better average return. This way, investors can even out the widely fluctuating rates and earn a stable long-term return.
5. Open an Investment and Savings Account
Buying stocks and bonds requires an investment account. Alternatively, a savings account lets you earn monthly interest. Some accounts may also offer tax advantages, like retirement fund accounts. However, you may have to pay a certain tax if you pull out your retirement fund earlier and use it as an emergency fund. It depends on the kind of investment account you are opening.
On the other hand, you may open a savings account to pursue your dreams. For example, saving to buy a house, go on a round trip through Europe, or to go on a family vacation, etc. The rules of a retirement account will not apply to such accounts.
You can also open college savings account for your child when they are still young. These accounts also offer a tax advantage. In addition, some college savings accounts may also let you earn interest, increasing the potential of college savings.
Investing your money can increase your earnings exponentially. However, it would help if you devised your plans strategically. Set financial goals for yourself and assess how much risk you can afford to take. Consider if you want to start with making small and short-term investments. It is wise to start small and then gradually diversify your portfolio.
But do not chase high returns for shorter periods. It is better to invest consistently over longer periods to earn stable investment returns. Moreover, review your investments regularly to track your earnings and returns.
Following these tips will help you invest smartly and increase your income potential.