Building wealth is easier said than done. The process is inherently complex and riddled with uncertainty. However, with a few time-tested investment strategies, you can set yourself on the path of financial success.
Whether you’re in your 20s, just stepping into the world of finances, or nearing 40, thinking of retirement, robust planning can make a world of difference. Here are five tips you can follow to invest wisely:
1. Determine Financial Priorities
First things first, know your financial priorities. Ask yourself, what matters most right now? Are you saving for a house, preparing for retirement, or building an emergency fund? Priorities vary, depending on your family situation and long-term financial goals.
For most people, building an emergency fund is the priority. This helps cover unexpected expenses, so you don’t have to dip into your savings when an emergency arises. Then comes paying off high-interest debts, followed by living expenses.
Once you’ve determined your priorities, start segmenting your money for investment. Investing is like building the foundation of a house — if there’s no solid base, how will the building stand?
2. Start As Early As Possible
You can only leverage the power of compounding if you start investing early. Starting early gives your money time to grow, helping you earn better interest rates over time.
You don’t need to earn an exceptionally high income. Start with what you can – even if it’s $25 a month. And most importantly, be consistent.
3. Diversify Your Portfolio
Don’t put all your eggs in one basket – experienced investors live by this principle. Diversification helps mitigate risks and protects your investment from market volatility. Spread your money across various asset classes, including stocks, bonds, mutual funds, and real estate.
Leverage online investing opportunities. Many reliable platforms allow you to invest commission-free and offer a variety of investment vehicles.
SoFi Invest, for instance, facilitates robo investing, where your portfolio is automatically managed based on your goals and risk tolerance.
4. Understand Your Risk Tolerance
Speaking of risk tolerance, what’s yours? It is an individual’s capacity and willingness to accept market volatility and potential loss in exchange for higher potential returns.
If you’re risk-averse and want stability in your investment portfolio, opt for low-risk investment options such as fixed deposits and bonds. But if you can tolerate high risk for greater returns, invest in stocks and options.
5. Avoid Emotional Investing
Just as emotional trading is dangerous, so is emotional investing.
Investing is a long-term commitment, so it’s important to focus on your financial goals instead of short-term market fluctuations. Here are some tips you can follow:
- Ask the bigger picture questions. Before investing, always make sure the move aligns with your long-term financial goals.
- Spread your investments across different types of assets. This will provide a defense against emotion-driven decisions.
- Avoid giving in to the headlines. During periods of market volatility, sensational headlines can significantly influence decision-making. Stick to your long-term investment strategy.
- Stop checking your investment portfolio and accounts every day. Let the money grow in the background.
