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“Investing?” you say. “It’s really not for me.” Many still assume that investing is either the province of rich men in fancy suits or a fast track to losing all of their money. However, you can speak with a financial advisor to find an investment style that works for you. Let’s look at some ways that investing can work for everyone.
Defining your Goals
Before you choose an investment style, you need to decide why you are investing. Do you want to attend university in a few years? Are you saving for retirement? Maybe you want to do both! When talking to your financial advisor, discuss your goals and any financial constraints; this will help them to tailor an investment portfolio especially for you.
Short-term vs Long-term Investments
OK, you’ve got your goals defined. But you still don’t know about the different types of investments. Let’s break it down.
Investing in the short term is often about wealth preservation, although you’ll earn more than if you park your money in a bank… or hide it under the mattress. Investing in the long term is all about wealth creation. Long-term investments usually carry more risk, but they generally give better rewards.
Short-term investments typically last for five years or less and can be converted to cash pretty easily; think of some mutual funds or bonds. Are your eyes glazing over as you read? Those terms are actually quite simple to understand. In a mutual fund, you pool your money with other investors to buy stocks, bonds and securities you wouldn’t be able to purchase on your own. Meanwhile, a bond is a fixed-income investment where you loan money to a corporation or the government, with a pre-determined plan for repayment.
Long-term investments are assets that you hold for many years; think of annuities or stocks. We’ve talked about annuities in our blog before. And stocks aren’t as scary as you may think. It’s true, the market can be hard to predict and that makes investing in stocks risky in the short term. However, the day-to-day and month-to-month fluctuations shouldn’t negatively affect your overall earnings once you’re in it for the long haul. People invest in stocks for a reason – they’ve got a higher long-term rate of return.
Each person’s risk appetite is different. Part of your risk appetite depends on your personality. So, ask yourself some questions: Are you usually cautious? Do you prefer to take only minor risks to achieve small but stable returns? Or do you want to make as much money as you can, even if this means you’re at the mercy of the market? Do you think BIG RISK = BIG REWARD? Maybe you think that now. However, risk appetite changes depending on age, salary, debt, family commitments and insurance coverage. You probably won’t want to take the same risks when you’re seventy as when you’re thirty!
Depending on your risk tolerance, your financial advisor can help create a portfolio that will help you meet your goals while also giving you peace of mind. This blog gave just a few examples but a professional can help you explore the full range of options. Before you dismiss the idea of investments, think about whether you haven’t yet found your investment style.