Six point guide to a smart investment
People invest with particular goals in mind, be it short-term or long-term. No matter what goals you have in mind, successful investing requires you to make decisions based on your needs, personal circumstances, and financial goals. To put together an investment plan, here is a six-point guide that you may find useful:
- Know yourself. No two investors are alike. We have different goals set, different time frames to achieve them, and a different risk threshold. When it comes to investing, risk is not all bad. Higher risk can present the opportunity for higher profits in the long run. The first important step in investing is finding your comfort level between risk and reward and evaluating the time frame of your investment. To get to know your “investor” self, assess your risk tolerance, investment knowledge, goals, annual gross income, and time horizons.
- Start early. The simplest way to make your money work is to maximize “composition” or the “process of money multiplying itself by making a return on return.” CIBC Securities, Inc calculates that when you start a bi-weekly contribution of $93 at age 25, and assuming an annual compounding rate of 7%, you will earn $500,000 at age 65.
- Invest regularly. It is advisable to make small monthly or weekly investments instead of large contributions. Investing smaller amounts in mutual funds over long periods can also lower average costs compared to one-time purchases.
- Create a diversified portfolio. Spread your assets across a wide range of investments. This reduces risk, protects your portfolio from downturns and offers higher potential returns over time.
- Monitor your portfolio. Examine your portfolio at least once a year and make decisions.
- Choose investments that are right for your time frame. It is important to choose the investments depending on whether they are going to be made in the short or long term. Conservative investments are suitable for short-term goals, while a diversified, growth-oriented portfolio is appropriate for long-term goals.