What Should You Better Remember While Investing Your Money?
If you save some money regularly, then keeping that money idle is pointless. Please put that money in some secure investing plan in which your principal amount will remain safe, even in the worst-case scenario. Also, you will get an average return regularly.
When you hear about an investing plan, your first reaction is, “Is that secure?” “How much is the return?” But there is a catch! The investment schemes that give you very high returns are generally the riskiest and non-secure ones.
Everybody wants to get a high return on their investment. But you must be careful not to lose your money, including the principal money. Please remember, it is your money, and you earned it because of your hard work. Please don’t let it slip away easily. So, do your research thoroughly if you need to invest in risky assets to attain your financial goal. Then based on your research, you can invest money in the risky ones.
Do Not Invest in High-Return Ventures
The higher the return, the greater the risk involved with your investment. You do not want to lose a big part or all of your investing money in the lure of higher return, do you? So, it is better to go for less risky plans in which your investment money will remain secure. However, there are indeed some exceptions.
Suppose there are two investment plans. One will return 2% per year, and the other will give 20% per year. In this case, anyone will choose the 2% return plan over 20% because the path of getting 20% may result in losing 40%. But the steady method of 2% return will give positive results over time and is preferable. Even a little return is better if the investment is risk-free. But if your research shows that the 20% return plan has little or no chance of failure, you may invest your money.
Before investing your money, you should do detailed research and move ahead. Below, you will see a way to do so.
Draw a Personal Finance RoadMap.
Before taking any investment plan or decision, you should evaluate your financial situation honestly. This evaluation is more required if it is the first time you are going to make a financial plan.
In your plan, you should evaluate your goal and how much risk you can take. You may take the help of a financial advisor if required. Even after doing all these, there is still no guarantee that you will make any money or profit from your investment. But, if you grasp the facts about investing and saving money and then go ahead with an effective plan, you should get financial security in time.
Evaluate how much risk you can take.
Every investment has some risk. If you want to purchase bonds, mutual funds, or stocks, you should make up your mind that you could lose at least some money at any time in this venture. It is because these are not federally insured. So, you could even lose the principal amount, the amount you invested. It is true even if you buy those securities through a bank.
Investing in deposits at credit unions that are NCUA-insured and FDIC-insured banks is less risky. The federal government insures these, and in case of any problem, you can always expect to get back up to $250000 of your investment.
But risky assets come with the prospect of a greater return from your investment. You may have a long-term financial goal. To attain that goal, you may need to invest in assets with higher risk: such as bonds or stocks. Otherwise, you may need to invest in less-risky assets to accomplish that goal. But low-risk investments also give a low return, so it is crucial to have a realistic financial plan.
Another thing you need to consider while investing is inflation. Because of continuous ongoing inflation, the cash value is constantly depreciating. So, your investment return value is also continually declining. Hence, it may not be correct to invest only in cash.
Banks and Credit Unions that have Federally Insured Deposits. If you think the US government does not back your deposits sincerely, you can read those on their websites. To find information about Federally Insured bank accounts, visit www.myfdicinsurance.gov. To get information about credit union accounts, visit http://webapps.ncua.gov/Ins/.
Mix Your Investments Appropriately.
You should mix all three major categories of investments: cash, bonds, and stocks, in your plan. Because of market conditions, investment returns can also go ups and downs. But historically, the return of the above three categories has never climbed up or down simultaneously. So, if you invest in all three, you will be protected against considerable losses.
Because of different market situations, when one asset category does well, the same reason makes another perform poorly. So, if you invest in more than one type of asset, the risk of losing money will be lowered, and the overall returns will go smoothly. For example, suppose you invested in all three asset categories: cash, bond, and stock. If one of their investment returns gets reduced, you can counteract it with a higher return of another, and your overall return remains the same.
As mentioned above, high-risk investments are those that also give higher returns. You need to put some money into risk assets to get more returns. But before doing that, you must research well to understand which risky investment has less chance of failure now but will return well. Then you can put some money on that asset for now. Put the rest money into cash investment or investment with a low chance of failure. The reason for placing at least some money into risky assets is that you need that to attain your financial goal.
Remember, risky investments return more! So, you need to invest some money into risky assets and get more returns to enjoy your retirement comfortably.
Everybody needs to invest money for retirement, a house, or medical emergencies. If you invest only in low-risk assets, you cannot get more returns back, and your financial goal will not be reached, so you need to invest in all assets to attain your financial plan.