The old saying of only you control your future stands true to this day. This is because you and only you can have input into your life. This is true in whatever you put effort into and this includes investing as well. There are several different basic investment concepts that everyone who is investing should know about and follow. This article will help to explain those basic investment concepts and help you to succeed in investing smart and wisely.
When To Start Investing Time plays an important role when you are investing. It first comes into play when the question of when is the right time to start investing is asked. The answer to this question comes easy when you have the money situation figured out. You need to will need to know how much money investing the way you wish to will cost and when you will have that amount of money saved. When speaking of your investment growth time still becomes a strong topic because of the concepts of compound growth or exponential growth. This is what will help you investment grow over time. Time plays an important role in investing because the earning and profits of each investment are based on interest and dividends, which are added to the principal during each time period.
The Affects Of Principal To Your Portfolio
There are many different risks you will assume when you are investing. The largest of these risks is losing your principal. If you lose your principal you will be accepting a very large loss, which could kill your portfolio. No one wants to see his or her portfolio with a loss.
Understanding risk investment is one of the most important concepts to grasp. As an investor you should have a complete understanding of systematic and unsystematic risk, probability and expected value. This will allow you to have a basic understanding of risk management and what it entails.
When speaking of risk management you will find many different factors are involved. These factors include interest rates, defaults, inflation, as well as economics and political aspects. It is recommended that any investor have a strong risk management plan to fall back on.
Allocation Of Assets
When investing most investors believe that it is all about picking the best stocks. However this is not true. It is where you asset allocation is that will help to determine your amount of returns. It is important that you spend the proper amount of time and money in asset allocation. What asset allocation means that there is a strategy in place that will help to give investors the needed flexibility to invest in something where the odds will work in their favor. It is better to buy less expensive and reap the benefits of average or better than average returns in the end.
Risk- Return Relationship
It has been said that risk and return are related. If you invest more money in the beginning it is believed that in the end you will gain a larger amount of money. Investors have the belief that if you invest more you will make more money in the long run. However this belief is not always the case. If you live life investing with this kind of belief you will find that an individual will have to work longer and harder to rebuild the savings that they have invested and lost. This can be detrimental to your financial well- being.
The concept of diversification is a strong and important one. This is a concept of not putting all of your eggs in one basket so to speak. You should spread your risk throughout several different categories. The reason behind this is that if you are losing money on one investment you might still have others that are doing well.
Consider Time As Being On Your Side
After talking to many different investors you will realize that time is on your side. What this means is that the longer -term investments are the ones to watch. These are the moneymakers. Many will believe that short-term market investments are the best because you will see you investment payoff sooner. However this is not always the case.
Timing The Market Is Not Always A Good Thing
As a beginner investor you might fall into the trap of the promise of making money quick. This is not the true story. What it means by timing the market it to figure out what did good last year, buy it and then sell it when the profits start to go down. This can be a dangerous thing to do when it comes to your portfolio and can cause investors to lose a lot of money.
Watch Out For Fees
The Department of Labor now requires all fees be disclosed to service providers. Every investors should learn to research what part of their funds are available before withdrawing from their 401k or any other investment that they may have. The purpose of having a 401k is to build up a saving account for when you decide to retire. If you are borrowing and paying large fees on the withdrawals you will find that your retirement will become a lower balance quickly. This will not allow for the investor to retire and live a comfortable life.
Monitor and Control Your Investments
Any investment that you make now or in the future should be regularly monitored and adjusted where needed. If you control your investments yourself this is very important to remember. Unmonitored investments can lead to a financial downfall. What it means to monitor and adjust is simple. It means that if you have an investment that is doing poorly there may be other investments that might serve you better. In cases like this you should shift your money elsewhere.
Investing is a game of chance. You can help yourself to do better in this game by following the concepts of investing and learning how to manage your money well. Staying on top of your portfolio or hiring someone to help you can be highly beneficial to your financial well-being.
This is a contribution from Daniel Bailey+ on behalf of worthylaons.