Picking the best investments isn’t easy as most people would like to get the highest returns with the least amount of risk, but there’s usually a trade-off. Plus, the highest returns typically come from risky investments. Regardless, the secret behind a ‘good’ investment is considering what you want to happen with your money, timescale, and attitude.
With that in mind, here are experts tips to consider when choosing investments.
Firstly, you’ll need to determine what you’re investing for, whether it’s for a business or extra income. For instance, If you’re considering long-term investments to grow a business and invest in niches like industrial tank painting, it goes beyond making commercial tanks look ‘nice,’ providing necessary services and keeping equipment sound. You’ll get to have more time tracking the ups and downs in the market and allow you to place your money into something riskier.
However, if you’re only looking to save up for a house and other big-ticket items, sticking to a traditional cash savings account is ideal. It’s risk-free and more manageable—regardless of whether the investment market declined in the following years, you’ll still get some profit from your investments.
Consider How Long Can You Invest
Besides determining an objective, before placing your money on anything else, think about how soon you’ll need to get your money back. That’s because time frames vary for different goals, affecting the kind of risks you’re willing to take on and what kind of investments you should pick. For instance, if you’re considering saving for a house deposit and hope to purchase a home in a few years, investments like shares or funds won’t be suitable since their value is volatile, so for this, it’s best to invest in cash savings accounts.
If you’re looking to save for your retirement in 25 years, ignore the short-term falls in your investments’ value and focus on long-term ones. Over the long term, investments in other cash savings accounts will likely give you a higher chance of overcoming inflation and achieving your long-term goal.
Diversification is a ‘basic’ rule of investing that improves your chances of getting a better return, but you’ll need to accept more risk. However, you can manage and improve the balance between risk and return by spending your cash across different investment types and sectors whose prices don’t move in the same direction. Doing this helps smoothen out the returns while allowing you to achieve steady growth, reducing your portfolio’s overall risks.
Check the Charges
If you’re looking to buy an investment or two, like individual shares, you’ll need to use a stockbroking service to pay for the dealing charges. That’s because if you’ve decided on an investment fund, there will be charges for the services of a fund manager, or if you choose to get financial advice, you’ll need to compensate the adviser for it. Regardless if you’re looking at investment funds, advisers, or stockbrokers, the charges differ from one company to another.
That’s why before investing, it’s best to ask a company to explain their charges beforehand to let you know how much you’ll need to pay. Although higher costs mean higher quality in most cases, always evaluate if what you’re getting charged for is fair and reasonable—and if you can get a similar investment quality but for fewer charges elsewhere.
Avoid Storing Cash and Consider the 80/20 Rule
Whatever investment ‘mix’ you choose, ensure you make the most out of the decision and don’t hoard the cash. That’s because inflation often erodes the actual value of money. For instance, with a 3% inflation rate every year, $100,000 will go down to $40,000 after three decades. As you get closer to your retirement, taking fewer risks that may jeopardize your account balance whenever necessary.
Some people consider choosing stock and bond balances using the 80/20 rule, commonly known as the Pareto Principle. It’s where 80% of the results come from 20% of the effort.
Conducting regular reviews is ideal, such as annual ones. Doing this ensures you keep track of how each of your investments performs, allowing you to adjust your savings whenever necessary to reach your goals. However, avoid doing a ‘stock-watch,’ which is acting every time prices move in unexpected directions—for the better or worse. After all, markets rise and fall all the time.
The investment market is a continually changing sector, making it challenging to pinpoint what exact investments one should make. However, the tips mentioned should help narrow down your choices and choose the best ones—ensuring better profits and growth.