Fundamentals Of Investing

Many people world over, you, I, have always at one point or another, thought about investment. But the highest risk in such, revolve about the real understanding of investment. Fundamentals of investment aim to demystify the process of using money to make money and give you a basic introduction to the key investment topics.

Ready to Invest?

Not so fast. Before we are ready to invest, we must first understand the importance of investment. Quite simply, you invest to create and preserve wealth. Investing however is a risk. By taking an appropriate level of risk you may have the opportunity to earn potentially higher long-term returns. It is important to remember that the value of investments, and the income from them, may fall or rise and investors may get back less than they invested.

Becoming a Successful Investor Requires both Planning and Discipline.

Planning means thinking carefully about everything you need to consider when developing your investment plan, including: 1. Defining your goals and your investment time frame. 2. Understanding asset allocation. 3. Looking after your investments over time.

By discipline, I mean keeping market movements in mind, recognising the potential impact of risk and regularly keeping your portfolio to check. Quite of major good it is, to live within your means and decide how much you seclude for investing before you start to develop your plan.

It is Important that you Define your Goals and Investment Time Frame.

Work out what you want to achieve from your investments and define your investment time frame. Your investment time frame provides a framework for deciding which investments to choose. Take it in the perspective, that whatever your goals and your time frame for investing, it is important to be realistic about what you can afford to invest and how best to manage your investments.

You should Decide if it is Income or Growth that you Need, or both.

Investment includes both income assets and growth assets. Now, growth assets are designed to provide most of their returns in the form of capital growth over time. Growth assets include equities, both national and international, and property investments. Over the longer term, these assets can help to protect against inflation or other situations to that effect. Income assets however, basically provide returns in the form of income and include cash investments, bonds and certain equities. Income assets , however stable, provide lower returns. On decision of either of these, you can go on to working, either with your financial adviser or on your own, to develop your investment plan.

Understand the Risks that can affect your Investment.

There are several of such risks; Country risk which includes domestic events, such as political disturbance, financial troubles, or natural disasters, which weaken a country’s financial markets; Currency risk that changes in currency exchange rates causing the value of an investment to decline; Inflation risk, which is a measure of the rate of increase in general prices for goods and services; Liquidity risk, which is the chance that an investment may be difficult to buy or sell. Market risk, the risk that investment returns will fluctuate across the market in which you are invested and short fall risk, which is a possibility that your portfolio will fail to meet your longer-term financial goals.

Apart from just understanding such risk, appreciation of cost and tax is imperative. Keeping them at minimum, improves potential returns. Talk of initial charge, exit fee, annual management charge, total expense ratio, stamp duty reserve and costs as such.

Having all these in mind, you need to understand how you allocate your assets. This simply means deciding how to spread your money across the different asset classes; equities, bonds, property cash, name them, and how much you want to hold in each. It also means selecting a mix of asset classes that reflects your investment objectives, time frame and attitude to risk.

Asset management determines sustainability of an investment. This is either by self-management or employing manager. Either of these regardless should keep market movements in perspective, and review your portfolio at least annually to make sure your asset allocation stays on track.

Nigel Walters is an avid blogger, he likes to share his thoughts on investment and the property market. He has written for a lot of online magazines and blogs such as Innovo investment property. His interests are investments, stocks and the property market.