Investing money is one of the most effective ways to build long-term wealth. This is because any savings that you hold in cash will generally lose value over time due to inflation, however investing can help to protect the value of your money. With that being said, investing requires a balance between being sensible and risk-taking to get right and be profitable- itâs not just about pure chance and luck so isnât something you should dive into headfirst without thinking through.
Itâs well known that financial investment can be hugely lucrative, with names like Warren Buffet, Bill Ackman, and Suze Orman springing to mind. But before you go dropping your hard-earned cash into some stock or currency, itâs vital you do an honest self-reflection and ask yourself if youâre truly ready to start becoming an investorâ says Rob Colville, CEO of The Lazy Trader.
Here are five crucial considerations to ponder over before making your first investment.
Evaluate your finances
First things first, consider where youâre at in your life financially. When it comes to investing, you need money to make money; if you donât have any spare income to begin with then you wonât be able to take that first step. You might need to spend time saving, cutting back your spending and carefully budgeting initially to raise the cash needed to invest. Money that you plan on investing should be completely separate from the money you need to pay bills, eat and keep a roof over your head, so this is something to bear in mind. Unless you already have disposable income or money to spare, then youâll need to generate this initial lump of cash to invest.
Come up with a plan
Making a plan can help you put into perspective your investment goals, and from there you can set out the ways you plan on achieving them. Breaking down anything in this way is sensible and investing money is no different, it gives you time to sit and work out where you plan on going with this and what you will do if various types of situations crop up. When youâre dealing with your hard earned money, emotions can often come into play and without a plan in place itâs easy for things to spiral if you start changing your investment strategy on a whim. When you hear news about markets plummeting or if youâre going through a period where your investments arent doing well, itâs very tempting to make rash decisions which can affect your long term outcomes. With a firm strategy in place, youâre much more likely to stick with your original plan as youâll have considered it from all eventualities. When you make decisions based on short-term market fluctuations, it can negatively impact what you set out to achieve. When youâre considering your plan, it doesnât hurt to start small and build up gradually as your funds allow.
Decide on the types of investments you will make
The next decision youâll need to make is what types of investments you plan on making. For example, wil you divvy up your money across a variety of assets such as shares, cash and bonds, or will you invest in a single asset class, such as a residential property? Itâs important to consider that the three major asset categories (stocks, bonds, and cash) havent historically moved up and down at the same time. So if one asset category’s investment return falls, if your money is spread across various types of investments you’ll be in a position to counteract your losses elsewhere.
Get professional advice
Professional advice can be worth its weight in gold. If you know youâre not an expert, dont be afraid to reach out and seek that help from someone that is. A professional adviser will be able to identify whatâs missing from the plans and goals youâve set, and help you to work out how your investments can achieve what you plan on doing.
Do your research
Thereâs no doubt about it, you need to know what’s going on in the market- both on a domestic and global scale. This includes everything from growth to unemployment rates, how interest rates and inflation is rising and falling and things like major political events. The current situation between Russia and Ukraine for example is having massive impacts on all kinds of markets so keeping one finger on the pulse is crucial. So spend time researching, reading and watching the news and stay up to date.
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