When there is a little extra money in the bank, or when monthly earnings exceed monthly expenditure, it is wise to resist spending everything on treats. Instead, consideration can be given to investing the extra capital. There are many ways to do this, but the successful investor, who adds to their holdings each year, usually follows a pre-defined investment strategy.
The appeal of investing
In investment, the cliché that time is money can be true. The appeal of investment is that hard-earned money can, over time, produce further wealth by itself. The ideal is for the investor to sit back and watch their savings grow; however, especially in challenging economic conditions such as at present, a little more input is generally required. The investor needs an investment strategy that is in line with their aims and aspirations.
Why it can be difficult to find a successful investment strategy
For an ambitious investment strategy, it is not always simple to find a rate of return above general bank interest rates. A savings account at a high-street bank offers a safe haven with fairly low levels of interest, but also low levels of risk. Achieving higher rates of return requires more knowledge of the investment markets concerned. It also includes an acceptance of some risk. This means that an investor should set out the goals for their investment, and act accordingly. Market analysis from the likes of financial guru Ken Fisher identifies some of the hot investment topics currently, and can help even novice investors to better understand the present financial climate.
The main types of investment available
For many people, investment beyond a bank account is linked to the stock market, however, while this is a key investment area, it is not the only one, and there are several ways of approaching it. To start with, a beginner in stock market investment may be well advised to consider a mutual fund for the initial investment. Such a fund places the management of capital in the hands of investment professionals, who seek to gain the best return within given strategic parameters. More experienced investors may venture into choosing specific company stocks themselves. These choices can be made according to, for example, the foreseen growth of a company or the anticipated regular dividends paid out on well-established stocks. Alternatives to stocks include commodities like gold and silver, or government and corporate bonds, which can be based on fixed interest returns.
Where to find more information
An investment advisor or stockbroker can provide expert guidance on investment choices. However, there is also a wealth of information available online, from which investment guidance can be drawn. To make the most of such advice, it is important to explore fundamental concepts, such as the terminology of investment. Without understanding ideas like price-to-earnings ratio, or without being able to read a graph of stock-market performance, making the right investment choices becomes even more difficult.
The risks associated with investing
All investment carries an element of risk. While some risk is minor, such as a bank going out of business, other risk is more significant, such as the stock on an unproven company losing value. It is necessary to understand the risks associated with a chosen investment strategy when setting financial strategies and goals.
Strategies that are likely to be successful
One of the key words in managing risk and building a successful investment strategy is diversification. An investor who holds a range of different stocks, plus a range of different bonds, plus some cash and commodities, for example, has a few advantages. One advantage is that the risks associated with one element of the investment strategy may be balanced by the other elements, so that not everything is risked on one market segment. For example, returns on bonds tend to increase when returns on stocks fall, so a wider portfolio is more balanced. Another advantage is that this diversification can help to take advantage of unforeseen growth, if one element of the portfolio proves to be unexpectedly profitable.
Tips on how to succeed and avoid failure
These, then, are the fundamental tips behind a successful investment strategy.
- Follow current market trends such as those outlined by Ken Fisher, and be aware of potential consequences.
- Learn some of the basics of market terminology and how to read market data.
- Set investment goals and choose investments that can help to reach these goals.
- Think of diversification and don’t put all your eggs in one financial basket.
- Take professional guidance when it seems necessary.
By putting all these tips into place, even uncertain times like the present can provide opportunities for investment and financial growth.