Steps in Investing
May 16, 2008
Before you involved in any investing activities, you must ask yourself whether you are currently meeting the adequate necessities of life. This might include some cash for emergency needs. Another prerequisite that you must able to meet up is the protection against the losses from death, illness as well as disability. Once you can ensure that these entire requirements can be satisfied then you can start establishing your investment goals.
The investment goals are the objective that you want to achieve by investing in the stock market. Different investors will set different goals according to their needs. Some might want to accumulate their retirement fund or some might just want to enhance their current income. Some even want to have saving for their major expenditures.
For example, accumulating retirement fund might be one of the most important reasons for investing. These retirement funds plan might not only applicable to the retired people but it might be a goal for younger people. This is because it is more preferable to start to access your retirement needs early so that you can have more time to accumulate sufficient funds for meeting the needs in later stage. Some families might use the investment to save for their major expenditures. The most common major expenditures might be the down payment for car, home, and education or even for the capital to start a business.
After deciding on the investment goals, you should start to adopt an investment plan. This plan is very important because it will guidance for you towards investing. This plan will describe on how you will invest your funds. The investment plan will include the short term plan and the long term plan. You should specify the target date to achieve it and the amount of tolerable risk that you can accept. It is clear that the more specific you can plan your goals, the more likely that you will be able to move towards your goals nearer.
Next, you can start to determine what investment vehicles are available. For each investment vehicles, you should evaluate their potential risk and return. Additional information about the investment vehicles will be useful for selecting the investment vehicles that consistent with your goals. The most important step is to select the investment vehicles that can lead to successful investing.
Diversified portfolio can be use to achieve your investment goals. Diversification allowed you to include a number of investments that consistent with your goals. There is an age-old advice saying that “Don’t put all your eggs in one basket”. Diversification will help you to earn higher return or you will be exposed to less risk than if you just have one or two investments.
Lastly, you must consistently manage your portfolio. You must measure the expected return compare with the actual return of the portfolio. If the actual return is less than the expected return, then you might need to take corrective action. The most important is do not be too quick to unload an investment or to chase hot tips. You must make sure that you have a good reason to buy or to sell.