Basic Rules of Investment
Basic Rules of Investment
It is normal that in our lives we want, hope, and wishing for more money and sometimes it does happen. We can have more money in our lives from working harder, win on the lottery, our investment, etc. After we get more money, this question is often arise: What are we going to do with our money? Will it be spend, should it be saved, or should it be invested?
I know it is a stark choice when you want to spend your money but in the other hand you want to save it or invest it so that you still have enough to maintain a lifestyle without worry.
So what are the basic rules of investment and how do they work?
First of all, you have to know yourself and what risk profile you are. You have to be honest with yourself and how you view both money itself and risk. This is very influenced by your parents, those who are close to you, your experience, etc.
If you are so afraid to lose $100 when you invest it in one of investment instrument, your risk profile is low. In other word, you are a risk averse. If you don’t mind invest $250,000 and you don’t afraid to lose it in order to get high return, your risk profile is high or you are a risk taker investor. Usually, high risk investment instrument comes to high return. You can establish your own “risk profile” by completing any of free online personality tests.
Both views of course, have to be measured against your overall wealth. If you decide to use a professional adviser, the first thing he or she will try to establish is to determine your risk profile.
After you know your risk profile, what is the next step to invest your money? The next step is to know your time horizon of investment. Is it short term, medium term, or long term? If you need money in the short term, then I suggest you to put your money in the bank account because if you invest your money in the stock market, the price can move significantly on a day to day basis. It’s very volatile. If your time horizon is medium term or long term, then the best place to invest your money is in stock market because stock market tends to go up in the medium or long term.
When you invest your money, you must do diversification. Just do not put all your eggs in one basket. If you had $100,000 to invest, you might put 15% into shares, 10% in premium bonds, 25% in Government Bonds, and the rest into property.
Most millionaires are risk averse; they just manage their risk better by preserving their capital, diversifying to spread the risk, and using sound money management techniques.
Remember this is your money and these are your dreams. You should never invest in anything you don’t really know or you don’t feel comfortable with
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