This post may contain affiliate links. Please see our disclosure for more information.
Making a smart investment is about making choices that will not only meet your unique needs in the present, but also ensure you are able to accomplish your financial goals in the future. This will likely be dictated by your personal circumstances that affect the decisions you make. Nonetheless, whether you are saving for retirement, a home or education for your children, it is imperative to have a plan that ensures the healthy growth of your finances. Therefore, before choosing any investment instruments, you need to consider some strategies.
1. Investing principles to consider
a. Know where you are
When looking to make an investment, it is important to consider where you are. For example, if you are approaching retirement, the safest bet will be to invest in risk-free instruments such as certificates of deposits or money market funds. However, these investments only offer dismal returns. On the other hand, if you are not nearing retirement, you can afford to invest in areas that pay higher yields. In addition, you need to figure out if you are investing for the long term or short term. This will help you in aligning your investments according to your needs.
b. Start investing early
One of the advantages of early investments is that it enables you get your feet wet, and thus you will gain more experience to make better investment choices in the future. In addition, you can take advantage of compounding, meaning you will earn more in the long term.
c. Make regular investments
Investing small amounts either in a weekly or monthly basis will be much easier than aiming to make a onetime lump sum investment. This can also help you diversify your investments in order to reduce risks, and can also be a better way to trace how your investments are doing.
2. Next Step
After considering these principles, the next step is to decide on a balance between high returns and low risk investments. This concept means that a low risk investment will mean you reduce the risk of losing your investment, but lower returns. On the other hand, high risk investments have higher returns, but the risk of losing your principal is also high.
3. Smart investment platforms
a. Online trading
Online trading is becoming popular every day. Technology has made online trading easier, with little or no restrictions. It is also easy and fast to learn. If you feel confident, then you can try trading with an online platform such as CMC Markets. What is good about online trading is that you can get a demo account and try it out before committing to investing real money.
b. Fixed deposits
If you are looking for a low-risk investment platform, then you should consider fixed deposits. These types of investments are offered by government and private banks. As the name suggests, they are fixed. This means they earn a fixed interest rate. Short term FDs will earn lower interests, while long term FDs will earn higher interests.
Shares are also a popular way to invest money. However, you will need to be cautious since the markets can get volatile sometimes and you end up losing your investment. The important thing to remember is that high returns often translates to higher risks.
d. Preferred stocks
Although bonds are long term investment options and provide good returns, preferred stocks are a better option. This is because they pay regular dividends and trade in a tighter range. As the name implies, preferred stocks have a preference over common stocks. This means that they earn more for a company than regular stockholders. Companies also pay preferred stockholders first. They can be thought of as a combination of stocks and bonds.
e. Peer-to-Peer Lending
Commonly referred to as P2P, this lending platform has been increasing in popularity over the past few years. This can be attributed to the recent financial crisis that made banks hesitant to offer personal loans. It involves two parties who meet on P2P sites to work out the terms of a loan. The process is streamlined and seamless, with borrowers making anonymous loan applications. On the other hand, investors choose from thousands of applicants and choose the ones they prefer. This means borrowers pay lower interest rates, while investors make more earnings. Although it is not entirely risk free, the good thing about it is that you only invest in small slivers, rather than on whole loans. This means you can spread your investments, which minimizes the amount you can lose.