For new and old investors, when considering an investment, there are things to know and to consider before choosing an investment. Making a good decision when starting your investment portfolio is as important as making good decisions when adding or diversifying your investment portfolio.
When it comes to investing, while it may seem there are dozens of options, there are really only two. You can either be a loaner or an owner. A loaner allows others to borrow their money in exchange for interest e.g banks and investing in bonds. You are basically investing in debt. An owner, on the other hand, invests in somebody else’s business with the hope that their ownership interest grows in value e.g investing in the stock market or in real estate. However, it doesn’t mean owner investments are better than loaner investments. Both are necessary. Loans offer relative safety, depending, of course, upon who you lend your money to. Ownership investments on the other hand offer the opportunity for growth, depending on whose business or what real estate you invest in. If you try to play it too safe and put all your money into super-safe loan investments, you’re practically guaranteed to lose to inflation over time. But if you put all your eggs in a risky ownership basket, you’re likely to lose both sleep and your savings. So you need both. The trick is how to determine how much of each, then to learn about both.
Things you need to remember:
• Don’t ever invest into stocks that you could possibly need within five years. The longer your time horizon, the lower your risk. This is also applies for real estate investments.
• Don’t put all your eggs in one basket. If you can’t afford to buy more than one stock, use a mutual fund or Exchange Traded Fund (we will talk further about this in the next articles). That way the level of risk is spread across different companies rather than just one or two.
• Don’t invest in stocks all at once: invest small amounts monthly or periodically. That way, should the market fall, you’ll have money on the sidelines to buy at lower prices.
• Now the most practical tip; to decide how much to put in loaner investments (the bank or bonds) and how much to put in owner investments (stocks or real estate) try this rule of thumb: Subtract your age from 100 and that’s the percentage you might want to put in stocks. So if you’re 25 years old, you’d take 25 from 100 and put that amount, 75%, of your long-term savings into stocks. If you’re 75 years old, you’d only take that kind of risk with 25% of your savings. Believe you me it works.
Investment is a risky venture yet rewarding when done right. So before investing, think about these things. You should also consider having a financial planner to explain that which you may not understand.
By;
Tsholo Angel Kopi
