If it’s your first time trying personal investing, you can become overwhelmed with the different terminologies and ideas it involves. People who have shown interest in investing often find themselves confused about what to do and how to do it. There are plenty of terms used in investments which may be unfamiliar to you. You will also be given varying advice depending on who you talk to. As a result, some people avoid the topic completely because they think investing is too complex. However, the truth is that it is actually fairly simple. With the right information, anyone can become successful in their investments. Today, let’s take a look at some of the most important factors you need to consider to get you started.
The most important factor you need to prioritize is your savinqs rate. It is the amount of money, calculated as a ratio or percentage, which an individual deducts from his personal income to save up for his future retirement. Research suggests that over the first eight years of investing, your investment return is less than one percent of your final outcome. Simply put, the early returns you receive wouldn’t have much impact on
the amount of money you’ll be earning in the end. This allows you to spend the first ten years of your investment life focusing solely on savings rate and not about returns. Your savings rate will always be greater than your returns.
WHAT YOU WILL INVEST IN
The term asset allocation is used to describe how you decide to divide your money into various types of investments. This is one of the most important decisions you need to make in the very beginning. According to research, ninety percent of the total investment returns you receive is highly dependent on the types of investments you choose to make. If you decide to invest in the stock market, it will have a huge impact on
your returns. However, the specific stocks you choose doesn’t matter as much. Your biggest decision will be how you’ll be dividing your money between bonds and stocks.
DIVERSIFY YOUR ASSETS
Diversification is term used to describe to process of allocating capital in a specific way which reduces its exposure to any risk or asset. Its main purpose is to reduce volatility by choosing to invest in different assets instead of a single one. It plays a very important role in investments because it’s the only method you can use to decrease your investment risks without sacrificing your returns. Asset allocation is the best way to
diversify. Choosing to invest a portion of your money in stocks and a portion into bonds allows you to diversify in various types of investments.
THE AMOUNT YOU PAY
Generally, higher prices are equivalent to higher quality. However, this concept isn’t entirely true when it comes to investments. In investing your money, you will earn a significant amount you didn’t have to pay for. The best way to increase your returns is to ensure that your lowering down your costs. According to Morning Star who is an investment research company, cost is the single best predictor you can depend on about the future return of your mutual funds. When you pay less money for your investments in the beginning, you will have more money available to invest in the future.
COMMITMENT TO YOUR INVESTMENT STRATEGY
You will encounter plenty of circumstances which may tempt you to alter your investment strategy. When you notice that the market is doing well, you may think about investing more aggressively. When you notice that it’s declininq, you may think about pulling out immediately. The most common mistake of people who are new
to investing is to give in to that temptation. As a result, they end up with minimal returns which lags the market as a whole. These people end up buying at high prices and selling them for low prices which is the exact opposite of what you’re trying to achieve. In order to avoid experiencing this problem, you have to learn how to stay committed on your investment strategy. Tune out the temptations and remain focused on your
goals. Don’t let changes in the stock market scare you away from continuing your investments.