Becoming a Smart Investor: Are You Investing Wisely?
Individual investors typically save and invest in purchasing a home, funding children’s education, or for retirement purposes. Most of us aspire to achieve financial goals or financial freedom, but not many know how to make it a reality. The go-to strategy is to save more money to obtain financial freedom. But the truth is, investing those savings is required and what money-smart people do.
Although saving can help you achieve your goals, you need to make wise investment decisions to get the prize of financial freedom. However, investing requires a specific strategy and clarity in your investment goals. Read along to help understand how to invest wisely and become money-smart.
Before making any investment decisions, it’s important to establish your own needs and circumstances, including your return objective, risk tolerance, investment horizon, liquidity needs, income needs and constraints. Making this assessment will help you to produce good investment results.
Wise investment decisions
Different asset classes are available for investment purposes. Each asset class has varied risks, and understanding those risks and related returns puts you ahead of other investors. Although risk is involved, rest assured that the below top tips will help you make wise investment decisions.
- Set up an investment budget
First, determine your gross monthly income. Next, deduct your fixed expenses (mortgage payments, insurance, etc.) and your variable expenses (fuel costs, utilities, etc.). If the resulting number is positive, then you have savings! And the last step is to keep some money aside for rainy days and invest the rest.
- Determine your investment horizon
The earlier you start, the better off you are when investing. This will save you from losing compound interest too! For example, if you are 25 and plan to retire at 55, you have 30 years to plan and invest in your retirement compared to someone who starts to invest later.
- Rebalance your portfolio
After creating an initial investment portfolio, you should continually monitor it to ensure it stays balanced, known as rebalancing. You can deploy two rebalancing strategies: shift investments between different asset classes based on their performance or allocate new money to underweight asset classes.
Investing money can seem overwhelming. However, setting a budget, determining your investment horizon and rebalancing your portfolio will help you make wise investment decisions for a better future.