3 factors that determine your investment strategy
You may be wondering which investment strategy is right for you, but without knowing anything about yourself, any advice on which investments are right for you may, in fact, be wrong. Basically, there are three factors that determine which investments are right for you, they are:
1. Your age
2. Purpose of money
3. Your risk profile
From your age. It would be pretty foolish of you to invest all your money in growth funds if you’re 65 because if the market takes a nosedive, as it did during the stock market crash of 1987 and, to a lesser extent, the global financial crisis in early 2000 have less time to recover from these setbacks while the youngsters have time on their side.
The purpose of the money is the second factor.
Decide if you need the money in the short, medium or long term.
In the short term it would be up to a year.
The medium term is from 1 to 5 years
Long-term is more than five years
Short-term expenses would be a bank account for emergencies, vacations within a year, dental expenses or paying for children’s school for a year.
In the medium term it would be savings for a car.
In the long term it would be your retirement fund, savings for a house deposit or savings for the trip of a lifetime.
Your risk profile is a determining factor in where you invest your money. If the thought of the stock market crashing is giving you sleepless nights, investing growth stocks in the stock market is not for you. A better option would be managed funds where you will be given a choice between growth, balanced and conservative funds.
It is important not to get into debt because debt has a cost and that is interest. Interest is added to the cost of goods purchased with borrowed money, and this adds up to a fortune over a lifetime of consumer goods loans. This is called bad debt because the value of the item decreases over time.
However, there is good debt and this is your first home because the value of the property increases over the life of the loan, but even this is not always a good option for some people if they live a kind of transient lifestyle.
“Each to his own”, so only you know what moves you, so your personal circumstances are the determining factors that govern where to best invest your savings.
You need to do your homework before you invest in anything, be it the stock market, managed funds, or gold. There is so much information available on just about everything, and that includes finances. It’s just a matter of learning the ropes and having a financial strategy that suits your personal circumstances.