Day 7: Invest – House, College, Retirement, etc.

So you now have opened your eyes, defined your goals, started tracking your spendings on a daily basis, defined your budget, are on track to get out of debt, and discovered – or re-discovered – the need for emergency funds and protective solutions. Quite a few basics we have there !
You now have to start working on maximizing your money; and the best way to do that is to Invest.

Your Risk Tolerance

Some may be afraid to invest; especially over uncertain times like presently; yet, studies have proved that investing is the best way to grow capital in the long run. To get started, you have to know what risk you are ready to take. You need to ask yourself what you want to achieve, and how comfortable you are with the potential value fluctuations of your investment. This will define your risk tolerance. To quickly define your risk tolerance, you can ask yourself the following questions:

• Your personality – Gambler or risk-averse?
• Your objectives – How critical to your well-being are your objectives?
• Your discipline – Can you stick to your plan in times of uncertainty?

Your Timeline is Everything

Knowing your risk tolerance is essential in defining what kind of investments you should go after. Yet, there is an even more important factor to consider once you defined your risk personality: your investment timeline. The shorter your timelines is, the less risk you should take.

For two or less years goals you should do your best to keep an easy access to your money. Keep it in cash; in a saving account or a fixed deposit. Your interest rate will be slightly higher; and you keep a clear control on your money. This is very secure.

For two to ten years goals you can start playing with your money a bit more. By having a few more years ahead you downplay your risk factor. Still, the market being what they are, you never know what the future may hold for your. Try to find a balance between easy-to-access investments and the stock market.

For longer than ten years goals you should really look into stock market; As long as you are not afraid of sticking to your plan over difficult times, you will enjoy good returns. In the long run, the stock market outplay all other passive investments.

Stock Market Kick-Start

The stock market can be quite frightening for a newcomer. Therefore, you should start with a few index-funds,managed by large investment houses. They help you kick-start your discovery process, while making sure you diversify your investment.

And should you really want to learn what the stock market is about, you should set aside a small sum to play with, and invest it yourself. By investing directly on the market you will discover what it really means to trade. You will experience the stress, and pleasures, associated with reviewing, selecting, and following your stocks. You may not outplay the market with your investments – yet you could surprise yourself – but you certainly will learn a few things on the way.