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7 Things You Really Should Know About Investing

Money can’t buy you love (allegedly) but it sure can buy you just about everything else. You will never hear a wealthy person say that money doesn’t matter. It matters. Most importantly because it buys you time and freedom. The key here is time - that means getting your money to work for you and not the other way round. That’s where smart investing comes in. You start with a chunk of money, you invest it wisely and carefully and you end up with a bigger chunk of money that can hopefully sustain your life, right into old age. Well that’s the principle anyway. Sounds easy? It’s not, unless you know how. So, before you start creating your own investment portfolio, you should be aware that there are some key factors that you really should know first. With that in mind, I have listed down seven major considerations that will help prepare you for what comes next.

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1. Define your goal

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We all have our reasons for wanting to have our own nest of eggs. It could be to prepare for unforeseen outlay, or just to plan ahead for our retirement. Whatever the reason may be, by defining your investment goals, you will be able to understand your liquidity needs and then can adjust your investments accordingly. So how much will you need?

2. Current Status of your Finances

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Before you start thinking of investing your money, you should make sure that you have enough funds to cover three to six months of living expenses. Try to pay down as much debt as possible before you start prioritizing any money for your investments. You will want to do this first because you don’t want to end up in a situation where you don’t have any cash when you need it, causing you to liquidate your investments prematurely. Remember you should only ever invest what you can afford to lose.

3. Know When You Need Money

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Although it is always possible to liquidate your assets whenever you need money, it is not advisable to do so as you could be liable for taxes or premature fees. As difficult as it may be, try to plan your cash needs at least a year in advance. This way, you will be stress free and can focus on making objective investment decisions rather than emotional ones.

4. Assessing Your Risk Appetite

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The amount of risk which a person can tolerate varies from individual to individual. Given the fact that the markets will have ups and downs, you have to decide for yourself the kind of investor you are. High risk investments usually bring high rewards. Low risk brings lesser rewards. What kind of person are you?

5. Portfolio Diversification

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We have all heard of the saying “Never put all your eggs in one basket.” But have any of us ever stopped to consider what it really means? Well, we know that the markets are always fluctuating and to insulate us from all these fluctuations we invest in different market sectors, industries or asset classes to let all these different fluctuations balance each other out. So when you invest in the financial markets, ensure that you do not put all your money in just one asset class such as stocks.

6. Managing Your Investments

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After you have planned your investment portfolio mix, you need decide how much time you want to commit to managing your investment. If you do not want to be too actively involved, then choose investments which do not require you to watch over them. Investment vehicles such as mutual funds and robo advisers are especially suited to investors who want a steady return but do not have the time to monitor the investments constantly. There are reliable online companies such as invest.com which can help you manage your investments automatically with affordable fees, according to your specific goals and needs.

7. Consult a Financial Expert

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Unless you are a whiz with financial planning, it is always advisable for you to consult a professional when planning your investment portfolio. The financial professional will be able to draw up an investment plan that is specifically tailored to your circumstances. If however you do not have the funds required to use the services of a money manager try a robo adviser service.

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