Published On: Tue, May 10th, 2016

Investment- Factors you need to consider before taking this Financial Step

Deciding where and when to invest your money is a major consideration for any investor. Aspects such as investment knowledge, financial objectives and even your stage in life influence this type of decision. Although there are various investment opportunities that people can take advantage of, it is important to carefully think about the investments that you want to make.

Time- Short or Long-Term

Along with carrying out research regarding a particular investment opportunity, you need to assess your investment plans before you part with your money. Before making any type of investment, carefully consider when you will need the money.

  • For short-term investment goals over a few years, low-risk conservative investments are ideal for funding. This is because you need to be able to access the money when you need it.
  • A higher risk investment provides the potential for better returns but is not ideal for short-term investing because they will not be able to reach their full potential within such a short amount of time. Such investments are more appropriate for various long term goals, including retirement.
  • Equity investments that are typically volatile on a short-term basis are likely to provide investors with higher returns in the long run in comparison to conservative investments.

Research

Evaluate the amount of knowledge that you have pertaining to investment before you give your money to financial planners or when you invest by yourself. Established investors who have experience are in a better position to make the right decisions regarding different investment vehicles, including the complex ones.

New investors can delve into investing through options that are easier to comprehend such as exchange traded funds. If you are not aware of the potential risks that a certain investment is associated with, you may not be able to make an informed decision. Financial planners or advisors can provide you with the knowledge that you need and offer investment recommendations.

Tax

Investors have access to alternatives that feature different tax implications. Some options are tax-sheltered while others are not. You can find out which investment plans will enable you to reduce taxes. Consider how a particular investment plan will fit in your with your strategy in terms of how generated income will be taxed. This will help you determine how to handle the investment and if it is taxable, research on ways to get tax reductions.

Portfolio Diversification

An important factor that all investors need to take into account is how an investment opportunity fits in with the rest of their investments. If your holdings are similar this has the adverse effect of decreasing diversity and increasing portfolio risk. Diversified portfolios include different industries and businesses. Select investment opportunities that will work well with the other investments that you have.

Risk

Evaluate the risk of your investments by considering how you would react to a decline in your investment value. Risk tolerance varies among different investors. Assess how comfortable you are with the potential downside by considering factors such as age, financial circumstances, changes and the ongoing situation in the market. If you want to start your portfolio, make sure that you focus on your long term financial goals.