August 11th, 2011 Archive

Investment – Is it for you?

August 11th, 2011 by Adaire in Financial Freedom

A few years ago, I told myself that I needed to make money and buy a new property or business. If I relied on my income alone, it could take me decades to achieve that goal. I had to find other ways to earn money so that I could achieve my goals at a much faster rate, and I found that making wise investments was a great way to do just that. With some assistance from this article by Lyn Bell in Healthy Wealthy nWise entitled “Top 10 Ways to Wisely Invest Money”, I’ll talk about what you aspiring investors out there need to do in order to achieve the same results as I did. :)

Investments and Savings
There are two things we can do to help our money grow: we can either try to save it or invest it. Saving is pretty easy – set aside some of your money, put it in a savings account, and allow your money to earn a small amount of interest over time. This sounds like the simplest way to get more money into your pockets, but the growth in interest is often too slow and too small for you to even notice.

Investment is more complicated than just sticking your money into the bank and watching it grow. Like starting up a savings account, making an investment requires you to have a capital to start with, but the money you put into an investment can grow significantly larger at a much faster rate. That’s because the value of investments are a bit unpredictable and are prone to going up or down very quickly.

This unpredictability gives you the opportunity to increase the money that you earn in the blink of an eye, but it also makes you prone to losing all your money in an instant. To avoid falling prey to that risk, you have to learn how to lay out a solid game plan before you start investing.

How do you start?
A common misconception is that investing is a privilege only for the rich people. The truth is that investment is also something an average Joe can do to fulfill his dreams – but only if he does it with careful planning and proper timing.

According to Lyn’s article, “In order to invest wisely, one must know where he or she wants to be”. When you’re thinking about investing, be specific. Ask yourself what you’re saving up for and determine a target date for your goal. Do you want to be able to buy a new car within the year? Do you plan on retiring in 15 years and want to have a nice retirement fund ready for you by then? Having a clear goal will help you stay focused and channel your resources towards getting there.

Should you focus on investing or saving?
You have to remember that even though you’re setting money aside for investment, you shouldn’t be ignoring your savings! Savings serve as your security blanket if investing doesn’t work out for you, or if there’s an emergency that you need to pull out extra cash for.

But if you’re still struggling to save money, how can you even think about investing? It’s definitely going to be a challenge, but the trick is to ensure that your money is going where it’s supposed by channeling your resources properly. To do this, you have to divide your money into three categories: expenses, savings and investments. The common tendency is to view investments the same way you’d view savings – as leftovers from your expenses. That’s a mistake! Investments should be treated more like expenses – like bills that you need to pay monthly. You don’t even have to set huge amounts of money aside per month – you can start at as low as $5 a month until you’ve got enough for an investment.

What are your options?
As an employee, have you been branded as an asset to the company? An employee can be considered to be an asset if the value of their contribution to the financial growth of the company is greater than the amount of money that they’re being paid. That’s the kind of value you should be looking for in investments.

The different types of assets include properties, retirement or mutual funds, health insurance, stock purchase, foreign exchange trading, business ventures, and many more. Choosing the right type of investment for you depends on your goals, schedule, and risk tolerance (meaning how much risk you’re willing to take). People who are closer to the age of retirement will have very little time to make up for any losses, so it’s usually wiser for them to have lower risk tolerance as opposed to a younger entrepreneur.

Which asset should you choose?
Now that you understand your options, which one should you choose? You don’t actually have to limit yourself to just one – in her article, Lyn mentions investment diversification, or spreading your invested resources among several types of assets. The concept is very similar to the saying “don’t put all your eggs in one basket”. Diversifying your investments will help you cope with losses, as it’s not likely that all your investments will fail at the same time. If only a few of your investments fail while others continue successfully, your losses won’t be as debilitating.

What do you do after investing?
Once all of your investments are in place, you need to monitor the rise and fall of your assets’ values to help you determine your next move – whether to venture into other assets, to buy or sell stocks, or to completely withdraw an investment. However, Lyn advises that you shouldn’t keep checking on your investment too often – investments are unstable and are bound to go up and down, and you might be tempted to back out of an investment if you see the slightest decrease in profit. As Lyn says, you have to “think long-term”, and that you shouldn’t “treat [an investment] as though you want the money next week and then take fright when it’s down.”

So is investing something that you should do? Yes, it is! You don’t have to be filthy rich to get started – all you need to become an investor are the right mindset, a clear plan, and possible contingencies. Investments provide opportunities for everyone – not just the privileged few – to fatten up their wallets and live in the lap of luxury. :)


Image by: thanunkorn /