10 Things To Consider Before Making An Investment
This Guide is related to the investment of the funds, How to invest intelligently in the mutual funds by a wise investor? How to avoid common mistakes? What is the functioning of the funds?
Some investors are investing without setting their financial goals. I am here going to discuss the points that you must consider while making an investment in the portfolio. The tricks and the tools that will help to generate more return on the investment are as follows:
1. Strong Financial Plan
Draft your financial plan on paper before any kind of investment. Set your goals and objective in the written financial plan. If you can’t make a financial plan for the investment in the portfolio then take the services of a professional. Also, set a goal How much you want to save in the future?
A Well-developed financial plan can help you for a number of years in the future.
2. Calculate Your Risk
You need to calculate the risks associated with the investment in shares, mutual funds, and bonds. Make yourself ready for the expected losses you need to bear in future. With benefits also some risks are associated with financial securities. The money you finance in the financial assets are not insured so you can lose some or whole part of your money.
Greater the risks the higher the expected, so the risk is high but you can enjoy the higher earning at the end. The inflation risk is associated with the investment in these securities. If you want to earn more in the short time then your financial goal must be to take more risk.
The conclusion is that the financial assets are not like insured deposits by credit union and bank; you need to keep in mind the level of risks connected with these securities.
3. Create Diversity In The Portfolio
Need to invest in different kinds of financial securities, in this way you can minimize your risk of loss. Include different companies bonds, shares and mutual funds to create diversity in your portfolio. Market conditions impact differently on different assets, some securities move up and some shows a decreasing trend. So, take securities in your portfolio with medium and high returns in the Market. In this way, if one security price falls then other will be high in your portfolio protect you from high losses.
All based on financial objective and goals If you want to earn more than a diversified portfolio for you because it decreases the risk. To earn heavy returns you need to invest in high-risk securities.
Some companies are offering investors lifecycle funds which include a diversified assets. If your goals to earn less but to minimize risk then lifecycle funds will be a great option for you to invest.
4. Don’t Invest In Single Company Stock
Some investors invest in the stocks of a single company, so this is not a right option if your objective in the financial to minimize the risk. As a rational investor put your money in a diversified portfolio to create barriers against the expected risks.
Investment in the Employer stock is also not a right option because the company can become bankrupt or competitors of the company can capture the whole market, so in this way, you can suffer high losses.
5. Keep Some Savings For The Unseen Future
Save money for at-least for the next six months. So, when you need the money should be readily available in your pocket.
Most smart investors put enough money in a savings product to cover an emergency, like sudden unemployment. Some make sure they have up to six months of their income in savings so that they know it will absolutely be there for them when they need it.
6. Try To Pay-off Your Bank Loans Or Credit Card Debt
Paid your bank loans with interest rates to the bank, It should be the part of your financial plan. If you are consuming any credit card loan then also paid it on time. So pay-off your debts is a good strategy before investing in the securities.
7. Follow The Currency Cost Averaging Method
Mostly the investors follow the dollar for the Cost Averaging Method. By this method, you can secure your investment during the bad and by minimizing the risk for a longer period. This method helps you invest more in the financial securities when the price is low and invest less when the price is high. The highly fluctuate financial market is the best suit for the Cost Averaging Method.
8. Take Benefits Of The Pension Money
Many employers offer retirement and pension plans to their employees. Used this free money in the future financial securities investment or during the bad times.
9. Make Some Changes In your Portfolio According To The Changes In The Market.
Keep up to date your portfolio and add new profitable and more risk-free securities. Keep focused on a diversified portfolio and don’t invest in the single asset.
Rebalancing is bringing your portfolio back to your original asset allocation mix. By rebalancing, you’ll ensure that your portfolio does not overemphasize one or more asset categories, and you’ll return your portfolio to a comfortable level of risk.
See changes closely in the market, purchase the assets at a lower price and sell them when the price is high. Rebalance your portfolio after six months or 1 year as the most of the rational investors are following this role.
10. Keep Yourself Protected From Scams
The scam people highly advertised the securities to trap the new investors in the market. So before investing into their securities first ask them some relevant questions and then check their answers. Talk with most reliable investors and people before taking any investing decision.