Before we make investment decisions in any industry, it is always better to have a thorough and honest look at our financial condition. This is especially important if you have never seen or made a financial plan before. Although no investment decision is 100% certain and has its own pros and cons, there are some important factors we need to consider before we lock our investment in any particular field.
1.Draft a Personal Financial Road Map
The core most step is clearly recognizing your goals and risk affordability. You can evaluate this either by yourself or hire a finance pro to do the job. Then again no investment guarantees mounting profits, but if gone through careful planning and investment management techniques, there is a high probability of acquiring an acceptable level of financial stability with benefits from your investments.
2.What is Your Comfort Zone in Terms of Risk?
Any investment poses a certain degree of risk. For instance, investing in bonds, stocks, or mutual funds is a high-risk game as you can lose some or all of your money or principal amount invested.
But let’s not forget the fact the higher the risk, the higher the potential of greater returns. If you have a defined financial plan mapped for a long-term, you can make thick money by carefully opting assets with high-risks such as stocks, bonds, etc., rather than limiting yourself to low-risk investments like cash equivalents. Although low-risk investments are ideal if you want to stay with short-term goals. One big risk associated with low-risk investment is inflation, which can eat up your returns without leaving you much to enjoy.
3.Be Vigilant When Looking to Invest in Shares of Individual or Employer’s Stock
Diversifying an investment portfolio is a great way to lessen the risk on your capital. Its common sense: If you try to put all the food in one plate, it has a high chance of falling off! By choosing a number of carefully selected investment choices, you will not only be able to minimize the potential of risks but would also control the fluctuations on returns.
While investing in shares employed by your employer’s stock or an individual stock calls for huge risks on your money. If the stock performs badly or the company goes bankrupt for whatever reasons, then you’ll probably lose a thick chunk of your capital invested.
4.Have An Emergency Fund as a Backup
Intelligent investors tend to save a considerable amount of their capital, just in case immediately required like sudden unemployment. It is better to stock a capital that could last you around 6 months or more in situations when you are out of any means of earning.
5.Pay Off High Interest Credit Card Debt
An investment strategy is fruitless if it fails to pay off all your high interest debts you may have incurred. In case of owing high interest credit card debts, it is advised to pay off the whole amount as soon as possible and then starting to think about your investment moves.
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