Successful investment strategy for beginners
There is no such thing as a 'good time' to start investing. Many of us understand the need to invest for the future, but lack the know-how. Some who know wait a long time for an opportune moment without realising that a 'ten-bagger' opportunity is passing by. Mostly, this occurs because our 'investment wit' needs more development. But, any improvement in this skill is gained only through a habit of regular investing. By the way, a ten-bagger, in case you are wondering, is an investment that returns a profit equivalent to ten times the invested amount.
Once again, it is never too late to begin investing and with little effort one can learn to identify and benefit from investment opportunities available to them. This guide is designed to help the reader get acquainted with the important considerations they must attend to before embarking on their investments.
Self assessment
In order to plan investments optimally, one must evaluate their current financial health and requirements. There are three main factors to consider, a. age, b. debt, if any and c. lifestyle. A person's age plays a very important role in deciding their investment strategy. A 20 year old may consider investing a larger proportion of their assets in riskier (more profitable) instruments such as shares, foreign exchange, derivatives etc. whereas a person in their 40s, is advised to have a comparatively smaller exposure to these instruments.
Secondly, having debt puts constrains on a person's ability to invest. If one owes money in the form of credit card debt, loan, mortgage etc., then it is highly recommended that they make debt reduction and removal their primary goal. Although it is possible to make a huge profit on the stock market and make enough money to pay off all debt, the consequences of a profit shortfall or a loss may be quite severe. One needs to also remember that the rate of returns on savings or investments may not always be sufficient to cover the rate at which their creditors charge.
Finally, consideration is also due towards a person's lifestyle, as it guides their investment requirements. There are several factors that may affect an individual's lifestyle. For instance, a person may have additional financial responsibility towards dependants, which may put limits on the amount of risk they may take with their investable assets. Or, they may have an inclination towards travel and wish to continue doing so through their retirement years. Such lifestyles require a carefully thought out investment plan so that the risk-reward equation is balanced favourably.
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