To save is good, to invest is better. With the high inflation rate eating into our funds, it is no longer sufficient to just save our money in the bank. It is now imperative to make our money work for us. To this end, investing is recommended. To ensure that you make good investment decisions, there are certain guiding principles that should be adhered to.
Create a financial plan: It is essential to develop a financial plan that will guide your investment decisions. Having a good financial plan will help you understand your goals, motivation, and risk tolerance. If you are yet to develop a financial plan, kindly read our article on financial planning.
Determine your risk tolerance: Your risk tolerance is your degree of ability and willingness to take on investment risk. It measures how much decline you are willing and able to withstand in your investment portfolio. Your ability to take an investment risk is determined by your financial stability while your willingness is determined by qualitative factors such as religion, personal belief, etc.
Develop an investment strategy: An investment strategy is a set of rules designed to guide one’s investment decisions. Some may decide to actively trade, others may decide to buy and hold. You could either go into investment for the short-term or long-term. Having an investment strategy helps you stay on track and provide clarity in making investment decisions.
Research! Research!! Research!!!: The importance of research before making an investment decision cannot be overemphasized. You should endeavor to research about all investment opportunities before making decisions. The level of research you make helps to decide the investments in your portfolio.
Build your investment portfolio: An investment portfolio is the collection of several investments. The accumulation of the aforementioned principles plays a part in deciding how to build your investment portfolio. Based on your risk tolerance and research, you can decide to either have an 80% less risky investments and 20% risky assets; or 50% less risky assets and 50% risky assets; or 20% less risky assets and 80% risky assets. The decision and choice of investments in your portfolio will be guided by your financial plan, risk tolerance, investment strategy and series of research made.
We have provided a series on how to build your investment portfolio. Kindly read the articles to further understand this cogent investment guiding principle.
Rebalance your portfolio occasionally: By rebalancing your portfolio, you ensure that your investment portfolio aligns with your dynamic risk tolerance and investment strategy, and changes in financial plan. It is recommended that investors rebalance their investment portfolios every six or twelve months.
These investment guiding principles will place you in a better position to make informed investment decisions. However, you can solicit the services of a financial adviser if the need arises.
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