Investing your money can be a risky business if you run into it with little thought, however it can also be a positive experience and yield good returns on your initial investment. For those looking to take that first step into the investment market, we provide 4 key things you need to consider when making your decision.
How much return is required?
The biggest aspect of any decision to invest surrounds the amount being invested and the return needed. You must carefully consider this and work out how much you can comfortably afford to put into investment accounts so that you do not hit financial hardships, whilst balancing this out with the possible return on investment.
You should consider what your reasons for investing are – it may be to afford a new car, university costs for a child or possible home purchases, whatever the reasons for investing are you need to know what your return needs to be. There are a number of online calculators that will help you develop a ’ROI’ figure to assist with your investment plans. The ROI required will help guide you and/or your financial advisor in deciding an investment plan and the types of investments required within your portfolio.
How long are you willing to leave an investment?
Alongside the initial investment amount another one of the key decisions to make consider before investing is, how long can you invest for? By having a longer term plan your investments are more likely to stand the test of time and increase, however this does mean that you have to be patient and be in a financial position that allows you not to have access to that money for the set period of time.
The period of time before you require to withdraw the money will determine the types of investment that are open to you. For example, if you are looking at a short term investment over a period of 1 to 2 years then cash saving and ISAs would offer you a better option. If however, you are looking at the long term then investments in shares and equities can leave you in a better position to beat inflation and see a healthy return. The important thing to do, regardless of the length of time or amount you invest, is to diversify your investment portfolio to ensure that your money is spread across different options. This acts as a kind of safety net to cover any potential losses one investment may make.
How hands on do you want to be?
There are a number of different option on how to physically invest, having decided on the amount and a rough investment timeline. You can be ultra-hands-on and make every decision yourself and instruct changes, or you can buy into trusts or investment funds to invest your money on your behalf. If you go for the hands-on approach it does require a lot more time and you have to be well versed in your current and potential investments. This method does give you the thrill of investing and can make those wins feel even greater. The other option – investing through investment funds – can be popular not only if you do not have a great deal of spare time, but only have a small amount of money to invest. In these schemes your money is pooled with money from other investors and spread across a number of investments, hopefully giving you a greater chance of seeing a better return.
Staying up to date
Whether you are hands-on or not, it is important to stay up to date with developments in the markets and within your portfolio. This will make it so that you are not as surprised when there are falls in value or great rises, it means that you will react rationally to these normal fluctuations. If you ‘stock-watch’ you will find yourself building stress over small daily movements, however these are long-term investments and need to be treated as such.
It is always advisable to work with a financial advisor or wealth manager when managing your investment portfolio, this gives you the bonus of using their experience and professional knowledge. If you ever have questions or wish to know more detail on particular aspects of your investments, they are also the best people to go to. The key to having successful investments is building a workable plan and growing your knowledge, if you can do these then you should be able to enjoy your time investing much more.
Article provided by Private Office, a company founded by Philip Simmonds in 2006 to provide consultancy services to SME businesses and investment advice to private clients.