To start investing, you will want to understand your risk tolerance and budget. This can be done by self-assessment or working with a financial professional. It is also important to look at your investments on a regular basis, but avoid making rash decisions that are based on panic or fear.
Investing for the long term
Investing for the long term can help you achieve your financial goals and protect your savings from inflation. However, the performance of your investments can be volatile at times. This can be due to a number of factors, including the economy, political events, and weather. Rather than trying to time the market, it is best to stick with your long-term investment strategy and ignore short-term fluctuations.
It’s also important to reassess your investment choices regularly. This could mean checking the price of your shares or reviewing your portfolio to ensure that it still suits your circumstances. For example, Francis recently discovered that one of her clients’ bond funds had strayed from its stated investment objective and was taking on too much risk by investing in junk bonds.
The three ingredients for long-term investing success are time, asset allocation, and consistency. To maximise your investment returns, you should try to invest monthly and avoid withdrawing money when the market dips.
Investing for growth
Investing for growth involves choosing stocks that are expected to perform well in the future. This can be based on easily measurable factors, such as market-beating sales or earnings growth rates, or qualitative ones, such as brand value and a competitive moat. Growth investors often prefer small-cap companies with room for significant growth. They also look for industries that have a large potential for innovation, such as technology and health care.
While investing for growth can provide high returns over a long period, it can be risky, especially for those who are concerned about volatility. However, there are ways to mitigate this risk by diversifying your portfolio and considering your financial goals, objectives and time horizon.
One way to reduce your risk is to consult a financial advisor and open a brokerage or retirement account. This will allow you to diversify your portfolio and avoid overexposure to any specific sector or asset class. You can also purchase growth investments through mutual funds and exchange-traded funds (ETFs). These investments may carry higher risk than individual stocks, but they can offer a steady stream of income and the potential to increase in value.
Investing for income
Investing for income is one of the ways you can grow your money while meeting financial goals. It involves adding income-producing assets to your portfolio, such as dividend stocks, bonds and packaged products that focus on income investing. The exact approach depends on your investment goals and risk tolerance.
Unlike savings accounts and GICs, where your capital increases with the interest rate, income-generating investments pay out dividends or interest payments on a regular basis. This supplemental income can be used to meet various financial goals, such as retirement spending or helping fund a home purchase.
Regardless of your strategy, it’s important to diversify your investments and minimize your exposure to market volatility. To do so, you may open a taxable brokerage account or tax-advantaged accounts such as IRAs and 529 college savings plans. You can also find index funds, which track a particular market and can be an easy way to start investing.
Investing for liquidity
Liquidity is a key consideration when investing. You want to have enough cash reserves in savings accounts, certificate of deposits (CDs), or money market funds to cover three to six months of expenses. Keeping more than this amount in assets like stocks and bonds can reduce your returns over time.
Stocks and other listed shares are generally highly liquid, as they are traded regularly by millions of participants. However, less-liquid investments such as corporate bonds may have lower trading volumes and settle more slowly.
Liquidity funds are heavily regulated pooled investment vehicles that provide same-day liquidity to investors. These funds are an important part of the global short-term cash investment markets, and many financial institutions and corporates rely on them as critical cash management tools. You may also want to invest a small percentage of your portfolio in illiquid assets, such as real estate and art, for their higher long-term returns. This can help diversify your portfolio and protect your wealth from unexpected shocks.