There’s a general assumption among the wise that if you start investing as young as possible, you put yourself in a position to a mass considerable wealth by the time you reach late middle-age – certainly in time to enjoy a comfortable retirement.
There are plenty examples of people who have done just that. And plenty of advice to boot. But when you are young and just making do with what you earn – and you have numerous commitments like rent, bond, car and university repayments, etc, investing may seem a bridge too far.
But there are many ways to get into the investing habit – from putting away small amounts regularly and patiently waiting for funds to grow, to finding short-term investments which can supply you with quick returns, build up savings, to eventually begin larger propositions. In short, you need to choose a strategy that suits your situation and circumstances.
How to develop a savings and investment strategy
- First thing to know is that a good investment strategy should minimise your risks while optimising your potential returns. Nothing is quick – and in the short-term you may even lose money, but your strategy should include tenacity and determination. A good investment plan takes time to work.
- A key beginner tactic is to go for the classic ‘buy and hold’ – which is pretty much what it says: buy your chosen shares and hang on to them – don’t sell on whim or emotion, or for a quick buck. This strategy should be geared to last at least 10 years.
- Keep your focus on the long term. Over time you may find you have tucked some real winners in the stock market under your belt. There’s a kind of ‘forget about it’ with regard to this type of long term investment. Keep your eye on it from time to time, but leave it alone while you work on other strategies as time and circumstances allow. If you commit to not selling in a hurry, then you also avoid capital gains tax which tends to shave off your good returns.
- Probably the greatest risk to your early investing is your own fear. When the market becomes uneasy and fluctuates, don’t lose heart or believe you have made mistakes; hang in there and ignore the naysayers. This is probably the hardest part of this type of strategy.
- Be prepared to engage in a learning curve; you need to know enough to find the right stocks in which to invest. How do you make those choices? The best plan is to go the route of index funds that track the performance of the S&P 500, the Nasdaq Composite, and the Dow Jones Industrial Average. These funds offer a broad swath of the stock market, giving you a well-diversified collection of investments, including many top stocks.
- Buying stocks this way is a simple approach that can ultimately yield good results. It’s low risk because your money will be spread rather than concentrated on a few stocks, and you won’t have to engage in analysing individual stocks on a daily basis, leaving you more time to do things you enjoy.
- Sometimes a good strategy to follow is the “index and a few” – which means apart from your main focus on index funds, you add exposure to a couple of individual stocks in a small way without spending too much money. This will help you to learn and analyse stocks without committing too much valuable investment.
- Income investments produce cash pay-outs – which means part of your income returns in the form of hard cash. You can implement an income investing strategy so you don’t have to pick individual stocks and bonds. This type of venture tends to fluctuate less, and you have the reliability of a regular cash pay-out from your investment.
Types of investment strategy
Low-risk strategies
Possibly the best route to start with is low risk; this way you can expect some returns without risking financial loss. Low-risk investments include purchasing bonds, fixed deposits, and savings accounts. Diversification is a key aspect of conservative investing – spreading your capital across several investments, thus buffering your funds should any area not perform well.
Short-term strategies
If you’re looking for quick results, then examples would include high-interest savings accounts, short-term bonds, and cash management accounts. This may be a useful way to go if you are interested in earning capital fast to invest in something else. But shorter investment time usually means less profitability.
Long-term strategies
Here you have a range of choices which include property, stocks, mutual funds, and gold or collectibles. Long-term investment offers lower risk and higher returns when compared to other investments. Patience and vision are required.
Passive strategies
Passive investment strategies allow investors to sit back and let their assets generate the profits. Property rentals and index funds are good routes to go here. You’ll still need time and effort to establish your portfolio, but once organised you won’t need to invest the same daily involvement compared to other investments. This strategy makes good sense if you want to get involved in other endeavours.
High-risk strategies
When starting out it’s not a good idea to go high-risk from the start. And yes, volatility is part of all investments, but risking initial money to gain quick returns is dangerous. Rather build a solid basis first, one that is working for you, albeit slowly – and then when ready, take a step towards more risky investments. These can pay off handsomely – but once you are more established, losses should not prove disastrous. High risk includes impetuous investing, and too much faith in untried and untested companies such as start-ups.
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