Investing is One of the main goals of budgeting is to have extra money to spend within the year – new gadget or equipment. Therefore, you put it into safe keeping like a savings account. It accumulates interest while keeping your money safe. Perfect for achieving a short-term goal saving.
Meanwhile, long term saving goals like a child’s education or business start-up needs more than a year of the budget. If you want to earn more while your money is kept safe, you need to learn how to invest for beginners. When you invest, the money grows at a rate faster than in a savings account. Despite the risks it carries to your money, the potential return is higher.
Moreover, the invested money is affected by inflation. The worth of your money decreases over time, especially if there’s a rise in the price of things. You must put in an investment where your money grows. Remember the important key points to consider before investing to retain money value or increase its value.
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7 Key Points to Consider Before Investing
Don’t get hyped. Determine when, where, and how. Keep in mind these key points to consider before investing.
Financial Fitness
Before anything else, do a fitness check on your finances first. If you plan to start with the stock market, make sure your savings account can last up to 3 to 6 months of living expenses. Pay off all your credit card balances before investing money. Be secured financially as you start your investment.
Make Good Use of Money
The next key point to consider before investing is to look at the best use of money. Your money has potential earning on investment rather than spending on the credit card interest.
Protect yourself from financial catastrophes. Settle your small business loans from licensed moneylenders like Cash Mart Singapore and buy insurance first before investing. It saves you from a worst-case scenario like investment wipe out. Health insurance protects your money against the high cost of treating health problems. Disability insurance, on the other hand, prevents fast wipe out savings due to disability.
Also, consider a cash cushion before investing. Have at least 3 to 6 months of salary in case of sudden unemployment. Place your money in an instrument that you can easily convert into cash without putting money at risk.
Goals for Investing
Always consider your objective before investing. You may want to grow your money fast or preserve capital in the safest possible way, as long as it does not lose value.
Basically, there are three goals compatible with different kinds of investments.
- Keep money safe because you need it soon – invest in less risky instruments if your financial goal is near. Investing in bonds is a safe instrument.
- Take a moderate risk for better appreciation – if you will not need the money soon, take a little risk with investment. A mix of stocks with stable companies pays out a dividend (income) or reinvest its earnings in its future.
- Take aggressive risks for higher gains – if your goal is growth, invest in stocks of companies that plows earning back into its future. Appropriate if you keep a long period of investment since it makes value increase sizably.
Furthermore, investing in two different goals is possible. Just like investing for a house down payment and retirement.
Age
Age is another key point to consider before investing. Being young has a lot of advantages. You have:
- Longer waiting time for an investment to bear fruit
- More financially secured
- Fewer responsibilities
- More disposable income
- Easily pick up yourself after mistakes
At a young age, you can get into risky investments that have above-average earnings.
On the other hand, middle-aged people think about retirement more. As you start saving for retirement, invest the maximum amount you can afford for future comfortability. Put the money in a safe investment, so there’s a little risk of losing before you retire.
Time and Knowledge
The time before turning investment into cash is also an important key point. The longer you stay invested, the more you can take risks. Hopefully, you get more gains since you still have time to recover from any potential loss. It is best to stick to a less risky investment like bonds.
In addition, consider the costs and penalties charged if surrendered or redeemed before a holding period. Make sure you don’t need the money before the prescribed redemption period.
Lastly, the tax implications of withdrawing your investment are considered.
Risk Tolerance
The general rule of investment is the higher the risk, the more potential for a higher return.
But not all can take the risks. You may be comfortable with the ups and downs of the penny stock market, while others don’t. Investing money for a potential higher return may not be worth the stress.
If you’re a risk-taker, choose aggressive investments such as growth stocks. But, if you’re a conservative type, choose relative safety bonds.
Diversification
Always diversify your investment portfolio. If one investment loses, others won’t be affected. Putting investment in one basket is a bad strategy.
As an example, investing in an employer’s stock is risky. If the employer goes bankrupt, you lose your job and investment at the same time.
Liquidity is another key point to consider. You get cash out from artworks, collectibles, and antiques instantaneously. But it may take weeks to sell depending on the market.
Be confident with your decision about investment. Take time to read, study, and learn more about the different investment goals. Find what suits you best. Most importantly, understand the key points to consider before investing.
