Choosing The Best Investments
Choosing the best investments as a novice investor can be a little daunting. If you’re only just finding your feet in the financial world and you don’t have a broker to help you, it’s easy to become distracted by the very many investment options available. The best thing to do is to take a beat and consider all your options before signing up with the first investment options that come your way.
Ask yourself the following questions before you do sign up with an investment scheme or unit trust:
- Why are you investing in the first place?
- What is your investment timeframe?
- How much are you willing to pay in costs?
- Do you understand the investment option you are considering?
1. Why Are You Investing In The First Place?
This question is probably the easiest to answer. Perhaps you want to create a nest egg, or you want to save for a house, your children’s education or simply to be able to retire comfortably. Perhaps you want to invest because you want to find a way to work responsibly with any surplus income you may have? Investing towards retirement is a goal that everyone should be setting for themselves, and this might be what you are looking into. Once you are clear on why it is you want to invest, it’s easier to choose an investment option.
2. What Is Your Investment Timeframe?
How long are you giving yourself to grow this money? Is it five years, ten years or twenty years? Obviously the longer you can invest for, the more fruitful your rewards will be, but it is entirely up to you. From the day you start investing until the day your investment matures is known as an “investment horizon”.
The investment horizon will also greatly affect your investment options as you can choose accounts accordingly. If you are saving for your child’s tertiary education and they are finishing school in five years’ time, then you would opt for a different investment option if you were saving for your retirement.
As a general rule of thumb, long-term investments can afford you indulging in more risky investment options. Short-term investments require less risky options.
3. How Much Are You Willing To Pay In Costs?
If costs are high, your returns on investment need to be higher. It’s important to examine this upfront as costs over the long-term could negatively impact your investment options, resulting in a fruitless exercise or even resulting in you losing money.
4. Do You Understand The Investment Option You Are Considering?
Past positive performance of your investment option doesn’t necessarily dictate that it will be successful in the future. This is where a deeper understanding of investing comes in handy. Try and understand why an investment option performs the way it does and what the contributing factors are. Also try and determine what the associated risks for the investment option are.
If you’re unable to answer these questions, then your best bet will be to enlist the services of a professional broker to help you get started. You can also use these services as a means to learn more about investing so that you can eventually carry it out on your own.
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