Does your idea of investing consist of putting spare change in a piggy bank? If so, then you might want to consider the following tips to help you get the most out of your finances and learn about investment.
Assess your financial situation and your goals
Your investment goals will depend on factors like your age, your income and your personal circumstances. Are you a student or are you planning on returning to school soon? Do you have any loans or mortgages to pay off? If so, then you might need to set some funds aside instead of tying them up. Or, you might consider only short-term investments. However, if you’re not planning on enrolling for at least another few years, you can invest for a longer period. This will allow you to build on your savings and even plan ahead for your retirement. Do you have a steady income? Make sure you’re aware of how much you need for your daily living expenses. This is important, as if you invest too much you could end up going into debt. You’ll then be in a worse financial position than you were before.
Diversify your investment portfolio
You’ve probably heard the saying: “Don’t put all your eggs in one basket”. This certainly applies to investing, as one of the best ways to protect your financial assets is to spread them out. This way, if market fluctuations decrease the value of a particular product, you’ll have other assets in your “basket”. Together, they will help protect you against the inherent risk that comes with investment. There are many different types of investments; focus on those with solid compound annual growth rates. Productive assets are those which produce their own surplus, like shares that increase in value. Bonds, stocks and real estate are three of the most common kinds of productive assets available.
A bond is a certificate verifying that you’re giving a loan to a company or the government. In return, they agree to repay you at a certain date, along with interest determined at a set rate. Stocks usually refer to business equity, where you share in the profits (or losses) of the particular business you choose to invest in. Stocks are generally considered worthwhile, as they require relatively little upfront capital. Profiting from real estate usually involves developing a property and then selling it or benefiting from rental payments.
Save “bit by bit”
It goes without saying that there are much more profitable ways to increase your savings than the piggy bank method mentioned above. That said, the same basic idea applies. The earlier you start, and the more often you set money aside, the more you’ll save in the long term. When it comes to investing, it pays to be the tortoise, not the hare. Focus on increasing your investments incrementally on a regular basis. This is more effective than committing to a single major investment purchase that could prove to be relatively unfruitful. Even worse, it could lead to your financial ruin.
Know what you’re getting into
In order to the play the field, it helps to know it. Educate yourself about financial terms and the markets so you’re well-informed to build a diversified investment portfolio. Consider the risk level and any associated fees or expenses for each product. There may be fees related to purchasing, managing or selling investments or for receiving financial advice. Others may be for administrative purposes. Don’t forget you’ll also likely be taxed on some of your investments. To learn more about investment, check out this handy guide offered by the Financial Consumer Agency of Canada.