If you’re a beginner investor, knowing where to start can be challenging. How do you know what investments are suitable for you?
And how do you guarantee the best returns possible? The entire process is certainly complicated, but luckily, there are a few different ways to make it easier.
In this article, we will go over how you can pick and choose your investments—interested in learning more? Then keep on reading!
Do your research
The first step to take when picking your investments is to do some research. There are many different options to choose from.
So you want to understand how they operate and their risk level. Here are a few of the most common types that you might want to look further into.
Also known as equities and shares, stocks allow you to become a shareholder in a business. If the company does well, you get the chance to make a profit.
They are considered one of the riskiest investment types as there is no guarantee of its success. It’s possible to lose all of the money you invested.
A bond is a type of contract between two entities. When you purchase one, you are lending money to a corporation (or government). They are pretty safe, but there are still risks primarily associated with the interest rates.
Mutual funds pool together money from a variety of investors to purchase different assets. This creates a diversified portfolio without all of the hard work. They can be a safe investment but work best for those with long-term goals.
There are a few different ways to invest in real estate. However, the most common is buying and renting a property, as it allows you to generate a monthly income.
It’s a less risky investment type but does come with cons, including lack of liquidity.
An ETF is a selection of shares sold on an exchange. Unlike mutual funds, they are passively managed and track a specific market index.
They are relatively safe, but it’s still important to do research first. Check out these best ETFs in Canada to get started.
Precious metals such as gold, silver, and platinum are popular due to their liquidity. While they are safe against inflation, they still come with risks, including possible theft and price volatility (due to economic circumstances).
Understand your goals
Once you’ve learned some general knowledge about investments, it’s time to plan out your goals. Think about what you aim to gain so that you can start to choose the appropriate types.
For instance, you might be planning for retirement or want a rainy-day fund. Whatever they are, make sure that they are measurable, so you can set a time frame to achieve them. Otherwise, you won’t know what options to select.
Consider how “involved” you want to be
While some people want to be 100% involved in the decision-making side of things, others would rather not. Think about where you stand so that you can pick the right investment types for your time and energy levels.
For example, becoming a landlord or managing individual stocks is a lot more “hands-on” than ETFs or other funds. Everyone is different, and your portfolio will reflect that.
Think about diversification
Diversify your portfolio reduces risk across all of your assets. When your picking and choosing investments, you want to keep this in mind.
Selecting too similar things is risky, and you have an increased chance of losing all of your money. Look for options with low-correlations.
It might even be beneficial to expand to overseas markets. You can learn more about diversifying and reducing your financial risk here.
Manage your costs
When you buy an investment, you need to pay fees to the service or fund manager. These can quickly add up and put quite a big dent in your potential returns.
Before deciding upon anything, make sure you look into these charges and see if anywhere else is cheaper. Yes, sometimes bigger fees can mean better quality, but it’s still worth looking into alternative options. It really can make a big difference.
Speak to a financial advisor
If you are still struggling with choosing your investments, one smart step to consider is hiring a financial advisor. It may seem like an initial expense initially, but they will help you put together a strong plan and assist you through the entire process.
Alongside this, they will create a budget and assess precisely how much you can afford to invest. It is worth it, especially if you don’t want to be a hands-on investor.
Avoid falling victim to the media.
It’s very easy to turn to the media when selecting things like stocks, but it’s one thing that you should avoid. Yes, they can provide helpful information, but it’s best not to rely on it. A lot of the time, they can make situations appear worse than they are.
If you read an article or see a news story, make sure you do your research and speak to a professional about your interests/concerns. This way, you can avoid making a rash decision.
Review your plan frequently.
Finally, the last step to follow is to make sure that you review your plan frequently. Just because you have picked your investments now doesn’t mean that they won’t change in the future.
You might wish to trade or purchase new assets to continue growing your portfolio. While you might not need to check it every single day, doing it here and there will greater your chance of completing your goals.
And that’s it! By following the tips above, you should now have a better idea of picking and choosing your investments. While it might seem a bit complex at first, you’ll be a pro before you know it. It just takes some practice.