One of the most important things you can do to ensure your future financial stability is start an investment program. Investing in the stock market, mutual funds and 401k plans are important steps to take to provide stability for your family in the years to come. It's usually relatively easy to start an investment program, and they often require little to no regular hands-on interaction.
Here are the top tips you must remember when starting an investment plan.
Determine your purpose
Investments must be chosen with a main goal in mind: safety, income or growth. The first thing you need to decide is which of those three characteristics is most important. Do you need current income, growth so the investments can provide income later, or is safety your top priority?
Determine your risk profile
To get started with investing, first determine what kind of risk profile you have and can take. Choose the level of risk you are comfortable with. Once you know what you're comfortable with, you can decide on what kind of mix of stocks, bonds and other assets that you can stick with for the long haul, without flipping out during rocky market periods. Some of the investment programs you may choose to start will carry substantial risk (technologies stocks, for example), while others, like mutual funds, are relatively low risk. However, in the stock market, you will often realize higher returns with higher risk investments.
Determine how much "extra" you have to invest.
Do you have extra cash in your bank account or credit union? Do you have more money than you really need to keep on hand to cover emergencies? Take the excess and make an initial lump sum investment with an investment house or brokerage. Then, determine how much you can invest out of every paycheck. Even if it's only $25 or $50 every couple of weeks, starting now will help you to get in the habit of putting money away regularly. As your income grows, increase the amount that you regularly sock away.
Create a core diversified portfolio.
Build a strong foundation for your investments by creating a diversified portfolio of your core holdings. You can do this by assembling your own portfolio by choosing mutual funds and ETFs across various conventional asset classes such as equities, bonds and cash. Figure out what types of asset classes you'd like represented and what percentages they should represent in your mix. Such a portfolio needs to be in line with your risk profile so you can sleep well and be assured you're doing the right thing.
Determine WHEN you need the money
An investment plan needs a time frame. Establishing a time frame you can stick with is of the utmost importance. If you need the money to buy a car in a year or two you will create a different investment plan than if you are putting money into a 401(k) plan on a monthly basis and won't need to use the funds for fifteen years or so.
In the first case, your primary concern is what the account will be worth in a year. In the second case, it is irrelevant what the account is worth in a year; of greater importance is positioning the account for growth so it is worth more fifteen years down the road.
Determine WHERE you plan to invest
Have you made a list of available investment choices? You can't create a good investment plan until you understand the choices available. Too many people buy the first investment product presented to them. Better to lay out a thorough list of all the choices that meet your stated goal. Then take the time to understand the pros and cons of each. Next, narrow your final investment choices down to a few that you feel confident about.
Remember, any investment program you start has the risk of losing value and, in turn, costing you money. Many investment programs carry low risk, but others are far more volatile. You can lose money if you aren't careful.
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Michael Griffiths is the CEO and Founder of Secrets of a Super Life, providing individuals with personal development strategies to increase their purpose, passion, happiness and life fulfilment. For your free life success pack please visit http://www.mysuperlifetoday.com
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