By Morgan International Staff Writers
Investments are a vehicle to store wealth and a wise investment will provide profit. Whether you are a personal or institutional investor, there is potentially a lot at risk when you begin investing. Therefore you need to have your wits about you. These are our top 5 things you need to know before you start investing:
- Understand the different investment types
There are a range of different investment types such as property, stocks, bonds, funds, shares, and savings accounts. They each have different risk profiles and also varying windows for a return on investment. It is important to know the characteristics of each investment type.
- Work out what you can invest
Decide upon what you have as an initial investment and potentially what you want to invest on an ongoing basis. You should also consider how much you can afford to lose in the worst case scenario as this will help you decide on your appetite for risk. For example, if you can’t afford to lose anything then you have no appetite for risk and you should be putting the money in a savings account with the bank.
- Confirm what you want from your investments
Are you seeking additional income for now or are you looking at savings for the future? Most investors fall neatly into one of two categories – investing for income, or investing for growth.
- Decide on your diversification strategy
To balance risk within your portfolio you need to diversify – this means choosing a range of investment types that will fare better/worse given the economic climate.
- Decide on your risk appetite
It is important to understand the level of risk associated with each different type of investment. Higher risk investments, if successful, usually offer higher rewards. Lower risk investments conversely offer less reward.
Investing is far from a game, and there is real money at stake. Therefore it is important to be equipped with robust knowledge before starting. Personal investors often hire the services of a CFA charterholder to assist them. Those looking to pursue a career in providing investment advice, or being an institutional investor typically look to gain the CFA charter.