To ensure that money makes a good return, investors need to do their homework. Use these 10 pointers as a guide to making wise investment decisions.
Conventional wisdom says that a fool and his money are soon parted. While most investors could hardly be called fools, that doesn’t mean they aren’t susceptible to making regrettable decisions – especially those new to investing. To avoid expensive errors, consider these 10 points before assigning any money.
1. Assign a fixed amount
Decide how much you have to invest and stick to it. Don’t be tempted to spend more money if an investment goes awry.
2. Gauge your level of risk
The level of risk indicates the potential for money to be both made and lost. People who are investing in order to make money should choose relatively ‘safe’ options such as ISAs or bonds issued by the government, known as index-linked gilts. Those with money to play with can take the greater risks associated with stocks and shares – and potentially reap greater returns.
3. Diversify
Like eggs, investments should not all be put in one basket. A diversified portfolio reduces risk. Investors can manually invest in a number of different areas or sign up to something like a global equity fund, which will do it for them.
4. Keep calm
Make all investment decisions rationally. Seek second opinions on any advice you may receive.
5. Understand what you’re investing in
If you’re investing in a company, make sure you understand how that company works and what it does. Simply throwing money at a business that vaguely seems to be doing something interesting isn’t investing, it’s speculating. Buying shares is effectively buying a piece of the company, so do your research – reading its annual report is a good start.
5. Understand what you’re investing in
If you’re investing in a company, make sure you understand how that company works and what it does. Simply throwing money at a business that vaguely seems to be doing something interesting isn’t investing, it’s speculating. Buying shares is effectively buying a piece of the company, so do your research – reading its annual report is a good start.
6. Avoid fads
The investment industry is susceptible to fads like any other. For the first-time investor, these fads are best avoided. By the time news of a money-making certainty has reached the level of the masses, it will be anything but a certainty.
7. Understand pricing
You should always check the recent price performance of any share you are thinking of investing in. However, just looking at the fluctuations is meaningless in itself – you must understand why any changes have happened. Check the news to see how industry or management changes may have affected the company.
8. Set limits
Decide on a target profit for shares and sell them when this is reached. Similarly, set a maximum loss to dictate at what point to sell loss-making shares. This technique can help prevent novice investors from making large losses.
9. Respect the stalwarts
While investing in a start-up may seem glamorous, the chances are that it won’t be the next Big Thing. With their lack of demonstrable abilities, start-ups may have the potential for high returns, but they also have the potential for failure. Large companies with proven track records are far safer bets.
10. Make use of available tools
There are numerous tools available that can help investors reduce risk. For example, software available from http://www.sungard.com/apt can be used for portfolio construction, factor modelling and risk reporting.
Image sources (1,2)
Image sources (1,2)
Resource box
The beginner’s guide to investment
Expert opinion on the best investments for 2012
Preview of investment guru Warren Buffett’s annual letter
First of all thank you very much to give me such good and important information to invest in the real estate, I talk with my dad follow this tips and strategy.
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