Top 10 tips to successful investing
If you think that investing your hard earned savings is a scary matter better left for financial wizards, and that the safest bet is for you to just leave it in some savings account or a time deposit, well, then, this article should help you overcome the uncertainties and doubts. You CAN make wise and profitable investment decisions.
1. Start Early
The only way you can make the most out of the limited time you have is to start early. The sooner you invest, the more time your money will have for growth. If you delay, you will almost certainly have to invest much more to achieve a similar result. Let the power of compounding work for you.
2. Keep Some Cash Aside
It is always a good idea to have some money set aside in case of emergencies. Maintaining three to six months worth of living expenses will insulate you from a sure fire formula for investment loss – distress selling.
3. Know Your Risk Profile
What is the point of investing in the stock market if you are going to lose sleep, if you don’t get a heart attack first, every time prices go through a rough patch. You need to be realistic about your risk appetite. An investment advisor can help you determine your tolerance for risk.
4. Never Forget About Inflation
Don’t fall into the false sense of security that very conservative investments might give you. The returns may look respectable at the start but not after you deduct the effects of inflation. Keep in mind that risk is not just about losing money. It is also about not having enough in the end.
5, Think Carefully About How Long You Can Stay Invested
If you plan to stay invested for a long period of time, say five years or more, then it is okay to go into the stock market and let your money work harder for you. But if you will need your funds very soon, you are going to be better off with low risk investments.
6. Spread Your Money Across Investments
Don’t put all your eggs in one basket. Depending on your goals and attitude to risk, you will probably want to spread your money across different types of investment – equities, bonds and cash. You may also want to diversify within each of these categories. An equity fund, for example, will invest your money in a variety of companies but you may want to ensure you have a range of industry sectors too.
7. Invest Regularly
Investing regularly can be a great way to build up a significant lump sum. You will also benefit from what is known as cost averaging. In this way you hardly feel the pain caused by delayed gratification since you are saving small amounts that you can easily afford.
8. Choose Your Funds Carefully
You should select investments based on your personal circumstances and goals. Don’t assume all funds investing in equities are the same – look at what a fund invests in and check if you are comfortable with its investment style and objectives. Choosing the right fund manager is nearly as important as choosing the right fund.
9. Remember That Time and Not Timing Is The Key To Successful Investing
Even the most experienced fund managers fail when it comes to timing the markets. As an investor your concern should be to have as much time as possible to stay invested. Take the long-term view and stay in a fund that you are comfortable with for as long as necessary.
10. Review Your Investment Regularly
There are a number of reasons why you might need to change your investment portfolio. Your goals might have changed over time or your resources might have changed significantly. Whatever the reason may be, your life stage will play a vital role in determining the right investment mix for you. It is prudent to review your investment once or twice a year at the very least to determine if you are still on track to hitting your goals.
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Before any investment action, we should know first three terms. Risk, Liquidity and Return. Ultimately, all of us want a higher return for our investments.
Risk comes how willing we are in losing our money. And of course, the higher the return, the higher the risk involve.
Liquidity comes in how urgent we need the money. This is where the idea of setting up an emergency fund comes in. Of course, investments require time and we need to be stayed invested for a certain period of time before we can realize good returns.
Finally, starting early is the ultimate way of investing. The power of compound interest will definitely be an ally to us. And time is essence here. The earlier you started saving and investing, the greater the chance for you to achieve financial freedom in the future and reach your financial goals in life.
Hope this helps! (I’ve been blogging about it.)
Hi Roy,
Emergency funds should be treated with the same importance as your long-term funds. In that sense, you should setup a portfolio of short term investments (money market placements) in building this fund. If you are starting from scratch then most of these funds are probably in a savings or checking account. That is the right place to start. You should maintaqin at least one-month worth in your SA/CA account for really easy access. From there start spreading out on the maturity dates. two-months worth can be in 30 to 60 day time deposits. The other three months worth can be in 90, 180, and 360 day placements. For these longer tenors you can look for RTBs, Time deposits, or promisory notes. Some banks even have structured products that might fit the bill. The secret is to ask your bank for these types of MONEY MARKET products. They probably wont offer them to you if you unless you ask for them. A simple and yet more diversified way to setup your emergency fund is to combine the savings and checking accounts with a money market mutual fund there are several of these types available locally.
One way to improve your emergency funding is to buy non-life insurance products (auto, fire, accident and health etc.) and HMOs. The most costly emergencies normally pertain to health so an HMO with adequate coverage provides you with a lot of emergency funding without requiring too much capital. Of course HMOs cost money. A typical HMO can cost around P10,000 per person per year but it gives you a medical fund equivalent to 10 to 15 times of what you paid for. Accident insurances, on the other hand are much more affordable but the coverages are limited.
With concern to Tip #2, my wife & I are currently building our 6-month emergency fund. Where would you suggest to place our emergency fund in which it will make a reasonable yield and at the same time it could be retrieved easily in times of need?
The best option for small investors looking for reasonable returns on thier investments are mutual funds. You can also look for a company-sponsored investment program if your company has one. If you want more details regarding mutual funds call 891-2860 to 65. Just be sure you choose the right fund or fund combination that fits your risk appetite and financial objectives.
Hi Kitty,
Cost averaging is an investment style where the investors puts in small regular amounts over regular time intervals (monthly, quarterly, etc.). This allows the investors to buy more shares (of a mutual fund perhaps) when prices are low and less when prices are high (hence, limiting his exposure in high price ranges). I’ll be posting an article on this topic next week to give readers a clearer understanding of the cost averaging approach. The title of the article is “How to Take Advantage of the Global Economic Crisis through Cost Averaging”.
I like this. It’s very helpful and I can share this with my friends. Pero, what are my investment choices, if I only have little funds to invest?
Hi! congratulations for starting off a blog like this. It’s easy read and helpful.
However, I’d like to post a clarification. What do you mean by cost averaging? Can you expound on this further, please?
Thank you and more power to you!