They say the best time to start investing is yesterday. And the next best, is today. It’s never too late to start (or boost) your investing journey. Instead of letting your income get completely spent by the end of the month, start putting some money aside, no matter how small or big the amount. Putting extra money in an investment vehicle is much better than keeping the money just lying in your account. This is because, at a minimum, investing counters a great many effects of inflation. But done right, an investment helps your money grow exponentially, based on the compounding factor which means that the longer your money stays invested, the larger your returns will be.
According to Saij Elle, you should choose your personal finance planning investments carefully. A smart investment plan can offer you meaningful returns and reduce your exposure and risk. Here are the key steps to building a smart investment portfolio.
Diversify Your Portfolio
This means don’t put all your money in a single investment vehicle. This way, if market volatility affects one of your assets or investments, you’ll still have the rest of your investments intact. Diversifying spreads risk and is a smart, safer way to invest your money. You choose to put in some money in bank deposits, some of it in stocks, some of it in property etc. Stocks can pay you through regular dividends as well as a lump sum if you decide to sell. For this reason, choosing some of the best stocks for dividends is often a vital part of any investment strategy. Saving bonds offer interest on your investment, which is a more conservative way of investing. Property is a great investment too, since you can get an income out of renting it, and a lump sum from selling it.
Make Regular Payments
Investing is rarely a one and done deal. The smart way to build wealth is to be disciplined about putting some money aside for saving and investing regularly, for example, each month. This is because inflation keeps rising. So, the amount invested just once and then forgotten will likely not be enough by the time you retire. So, leverage the auto-payment features in your bank account and start a monthly amount so you don’t need to risk forgetting to save.
Aim for Power of Compounding
In banking terms, compounding refers to the cumulative effects of earning interest on an amount year after year, for a long time. With compounding, the amount earning an interest grows every year, thanks to the interest earned added to the original amount every year. This means your money grows exponentially, with its worth far more once it has had a chance to earn interest for years. For this reason, as tempting as it might be to withdraw your investment once you earn a bit of a return, resist doing that. This will allow your untouched money to grow much more through the power of compounding.
Try to Balance Risk and Return
While you don’t want to waste the opportunity for a higher return, you also don’t want to rush into a high-risk-high-return type of investment that is too risky and rarely pays off. Try to balance your wish for a quick return with the level of risk that is acceptable. Smart investments are usually the ones that are kept on for a long time to get the benefits of compounding, and that are lower risk. So, be wary of the high-risk option.
Smart decisions regarding investing help you create a healthy nest egg for your retirement and your family’s future. Use the above guide to help you with your investment choices.