Investing is a complicated subject. And yet, if you prepare yourself and follow the simple rules, you’ll be better equipped to actually start investing successfully. In this article, we will give you 5 helpful tips that will enable you to create a profitable portfolio.
1. Utilize Professional Advice
If you want to invest your money wisely, you don’t necessarily have to turn to a professional asset management firm. In principle, it is possible to take your finances into your own hands. However, this requires sufficient experience, time, and knowledge of the financial markets. Otherwise, when you manage your assets, you run the risk of losing money.
It is also important to keep an eye on all assets and not just focus on individual investments. Those who do their own asset management should invest their money as broadly as possible. This includes, for example:
- Shares;
- Funds;
- Bonds;
- Real estate.
Moreover, asset management is a long-term matter. It is important to remain calm, even if the markets are stormy at the moment. Don’t get into a hectic rush and constantly shift your money around. Investing, not speculating – this is also the most important maxim for asset management on one’s own.
Of course, there is nothing wrong with hiring a professional, but modern online brokers have sufficient functionality for you to manage everything yourself. Top online brokers, like Brokstock and Interactive Brokers, even offer personalized advice.
2. Start Early
They say that the best time to start investing was yesterday. Time is the most important factor because most of the profits from investments come from reinvesting over time. This is called compound interest, which means that profits already made will, in turn, bring you new profits.
If you start investing at age 15 and invest, say, $30 a month at an average annual return of 10%, you will have accumulated $40,000 by the time you are 40. However, if you start investing at the age of 25, you will have to invest about $100 per month to achieve the same result, i.e. more than three times the amount.
If you start saving and investing early enough, you can use the money you have saved, for example, for a down payment on a house. If you buy an apartment for $80,000, your down payment will be at least 10%, or $8,000. Life is much easier if you do not have to start saving for your own home when you are 25 years old. The same principle is applied if your goal is to start saving for retirement. We would also recommend that you look into income investing. You can learn about income investing at ASR.
3. Set Goals
Asset accumulation and investment help you in many ways. Depending on the phase of life, different goals may be chosen – saving for the children’s education or even providing for retirement. Defining the goal is up to you but we can help by giving a few tips:
- Narrow down your goals. You may not be able to achieve every financial goal you’ve ever dreamed of, but if you’re clear about which ones are the most important, the saving will be much easier.
- Be prepared for conflicts of interest. When it comes to a conflict of interest regarding the importance of goals, you can use certain criteria to make a choice. Which one is most likely to meet the needs of the people you care about? Which one would do the most harm if you put it on hold?
- Use the time factor. The most important ally for achieving long-term goals, such as retirement planning, is time. After all, assets invested in stocks, bonds, or mutual funds will normally grow over time.
- Choose carefully. When making a list of your goals, never lose sight of your financial independence.
- Cut out the big expenses. After you’ve set your priorities, keep your spending in check. Whenever you’re faced with the decision to make or not make a major purchase, ask yourself if it will take you further away from your big goals.
- Be open to change. Your needs and desires will change over the years. That’s why you should review your priorities at least every five years.
By using these tips you will be able to clarify your goals and make sure that you achieve them.
4. Diversify Your Portfolio
Unfortunately, “the only investment you will need to make” has not yet been invented. Anything that offers security tends to have low returns. It is therefore advisable to find a healthy mix of assets for your portfolio. In addition to your risk tolerance, general risk aspects should also be decisive here. For this purpose, it is worth taking a closer look at the asset classes as well as the sector and country distribution:
- Asset classes, also known as investment categories, classify the various investment opportunities. There is a choice of equities, fixed-income securities such as government bonds, real estate, and real estate funds, or commodities such as gold. Putting all your eggs in one basket is not necessarily advisable, because if one asset class does badly, others could possibly compensate for the losses.
- Industries should also be well diverse in a portfolio. For example, an investor who already has a home and several rented apartments should not invest their money exclusively in real estate funds.
- Investors should also consider securities from different countries when making investment decisions. After all, if one economy is in crisis, this does not automatically apply to another.
As a general rule, investors with a low-risk tolerance should have a higher proportion of fixed-term deposits or bonds in their portfolios. Investors who are prepared to take risks, on the other hand, can increase the proportion of equities.
5. Monitor Your Investments
Once the goal is set and the right assets are bought, most people think that the job is done. However, you still need to monitor your portfolio regularly. Sell the assets that increased in risk, reinvest the profits, etc.
Concentrate only on the things you can control in whole or in part, and factors that are beyond you simply evaluate (expected range of return, taxes, and so on) to understand their suitability for investment purposes.
By following all these tips you will ensure that your investment is to a great start. The most important thing here is to figure out all detail in advance and not buy the first asset that you see.
