The top things to consider before you make an investment

The top things to consider before you make an investment

Investing is not as hard as they make it out to be. It can be a lucrative and relatively lower risk venture if you make the right investment steps. We explore how you can get investing with this handy set of tips.

Start with a financial roadmap

You need to understand your exact personal financial situation before you make your first investment. You also need to understand your financial goals, as well as your capacity to shoulder the risk. It can be challenging if you have never considered these aspects before, but you should have it worked out in no time. If you understand what your current situation is, you will be better able to develop an investment framework that will help you to meet your goals.

Can you handle the risk?

Investment is considered risky because it features a lot of risks. For investors, growth and value is the outcome of shouldering the risk. You should always consider the possibility that you can always lose some or all of your money, just as easily as you may grow it tenfold. This is true even if you make investments through a regulated partner such as a bank. Understanding your capacity of risk-taking will help you develop an appropriate investment portfolio that suits your needs.

Create an investment mix

Having considered your risk-taking capacity and goals, you should then develop an appropriate investment mix for you. Short term investments, such as bonds and stocks, will generally be riskier but offer a better payout than their alternatives. Long term investments, such as funds and other similar asset categories will generally attract lower risk but may face an inflation risk with the returns being cut down by lowering the time value of money. Choosing what you know is a great way to get started with your investments.

Create and grow an emergency fund

You should always protect your investment by ensuring you set aside some emergency funding to avoid eating into your principal. Many investors give up halfway and lose out on potentially larger earnings due to the need for emergency funding. It could be as simple as losing your source of income or a health problem in the family. To counter this, experts recommend that you keep aside up to six months’ worth of income. Even if you do not end up venturing in investment, it can be a viable way to secure your financial wellbeing in the short term in case you lose your income.

 Rebalance your portfolio once in a  while

The value of your assets and their rate of growth will change, depending on market performance. Since you are holding your assets for a lengthy amount of time, you could end up with some assets performing better than you had projected while others may fail to meet the mark. Rebalancing your portfolio helps to restore its competitiveness and value, which increases its ability to meet your goals. You should only rebalance your portfolio strategically since it is not a necessary step until much later into your investment.

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Michael Aniston

Michael started with a master's degree in finance before he went into technology and coding. He is now a freelance journalist and video producer living in Berlin, Germany. When he doesn't write, he will travel many countries.