Those who aren’t familiar with the ins and outs of personal investments may think of it as a get-rich-quick scheme. Nothing could be further from the truth. In fact, success with personal investment comes from awareness, knowledge, rationality, and patience. Are you a hothead who works purely on instinct? Or a ponderous, timid, and reluctant investor? As with most things in life, the key is balance. There are some common - and not-so-common - proven strategies you can adopt to help you make better decisions when handling your personal investments. Read on to find out more.
Personal investment is when an individual,
rather than a company, invests and manages their own financial portfolio, such
as stocks, bonds, property, or currency. It requires the individual to form
their own strategy and framework, based on their own aims, and to an extent,
their personal characteristics. Many choose to invest as a way to build wealth,
potentially quicker and more lucratively than interest in a savings account.
It’s also a way for individuals to take more direct control of their finances
and financial security, and put their money into causes or products that they
Before you start pouring money into
anything, you’ll need to make a sound plan to keep your investments on track. A financial plan will allow you to
assess your current situation - how much money you have left to invest after
your monthly outgoings are covered, your credit situation, and your risk
tolerance. One of the main benefits of a plan is that it discourages investors
from making emotional or spur-of-the-moment decisions that will cost them money
and derail their plans for increased wealth. The plan should be honest and
realistic, and most importantly, stuck to.
To the uninitiated, personal investing can
seem confusing and daunting. And in a way it is! Beginners are more likely to
make bad decisions, invest in the wrong thing, or invest too much or too
little. Happily, there are financial and investment planning specialists that can help along the way. Whether you’re a seasoned investor or wet
behind the ears, it helps to have someone in your corner who can offer sound,
balanced advice to help you better manage your financial portfolio.
When you’ve got money to invest, invest it.
Money that sits in your bank account doesn’t work for you in the same way
invested funds do. It might seem daunting to suddenly throw your money into an
investment (again, consult with your chosen professional), but the longer it is
invested the more chance it has to grow. And don’t try to time the market -
stocks and other investments rise and fall in value often, and pulling funds
out of the market (and putting them back in) are difficult events to time.
There are several ways that your money can
be invested, and each investor will choose the type that suits their goals and
overall plan. An investment advisor can also be of use here, as this can be
confusing at the outset. Here are some of the most common types of investment.
Also known as shares or equities, buying
stock is probably the most common way to invest money. When you buy stocks
you’re buying an ownership stake in a publicly traded company. Hopefully, this
stock will rise in value, and you’ll be able to sell it for a profit. Of
course, there is inherent risk attached to buying stocks - should the company suddenly tailspin or the market
crash, you’ll lose money on your investment.
A safer but usually lower profit way to
invest, when you buy a bond you are lending an entity money. This is almost
always a company (corporate bonds) or a government organisation (municipal
bonds). While the money is lent you accumulate interest on your money, and when
the bond matures you can take back the principal and your interest. Again,
there are risks, such as the company defaulting, or a market crash.
This refers to a pool made up of several
investors’ money as an investment vehicle that is invested in a number of companies. Although the
investment is subject to the same risks as stocks or bonds, it is by nature
diversified, lessening the risk.
When you invest in a commodity you are investing in a physical product. These are made up of metals (precious ones such as gold or silver, or industrial, such as copper or aluminum), agricultural products (wheat, corn, soybeans), livestock, and energy. Investing in a commodity requires an in-depth knowledge of the product, and markets can shift suddenly and dramatically due to unpredictable world events, such as weather (drought, monsoon, heatwaves, or unexpectedly cold weather), war, or social unrest.
No matter how you plan to invest, having a
plan and strategy is essential. And, with good advice and rational thinking,
making the right decisions can pay dividends.