The Basics of Investment

This article will deal with the very basic formulae that would help anyone to kick off their investing goal easily. Most people find it difficult to start investing their money and they rather opt to save money in the more traditional forms such as bank fixed deposits and normal savings account. However, if they spend a little time to do some research and understand the basics of investing, then they will get to know that investing money is not very complicated.

Here are the basic rules to follow when you start to invest money.

  • Financial goal: Have financial goals and make a clear map of your short term and long term money requirements.
  • Asset allocation: You have to then come up with the correct mix of mutual funds, bonds, real estate and stock as per your financial goal and requirements.
  • Diversification: Just because you aim for high returns or the other way round like you want to play it safe, do not put all your money into just one category of funds or stocks. Dividing your money into different categories of funds, stocks and real estate otherwise called as diversification is the key to building successful investments.
  • Rebalance your portfolio: A regular review of your portfolio is mandatory. If you find any of your investments not doing well to meet your financial goal, then you have to adjust your portfolio by selling those funds or stocks and buying more of the ones that are doing well. This will get your portfolio the correct mix as needed.
  • Make adjustments as you age: As you near your retirement and as your income source stops, you have to slowly shift to less risky options with your investments. This asset allocation will be in accordance with your financial goals and your current requirements. It is better to avoid high-value investments in stocks and high-risk mutual funds and real estate and focus on debt funds and bonds and so on.

Once you implement these simple rules and follow them diligently, investing money will become interesting, simple and extremely fruitful. However, it is always better to consult with your financial advisor before you start investing and to know about the market situation.

 

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About the author: MOHAMMAD REZA

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