Basics of Investing

Goals of Successful Investing
Successful investing can only come about with the combined use of 3 main ingredients:
  1. Financial education.
  2. Financial experience.
  3. Surplus cash.

At the end of the day, investing is based on common sense and not necessarily on a greater amount of knowledge or a high level of education.

But you need a basic knowledge of how to be successful in investing and this can come about by attending seminars or taking a course, or reading investment and financial publications.

  • Financial education.
    Financial education will come about by researching the field of investments including studying financial commentaries and journals and reading books on investments. If necessary, meet with a financial advisor and pay for education on some of the basics of investment, including the risks involved and which products are superior.

    Learn what fixed interest means. Learn what shares are all about and learn why managed funds are popular. You basically need to educate yourself in this area if you are to achieve success.

  • Financial experience.
    It’s good to learn from experience. However, trial and error can sometimes be costly, so take into account all the mistakes and successes you have achieved in the past and learn from them. Experience can be costly, so hopefully your experience will come from successes, rather than mistakes of the past.

  • Surplus cash.
    Make sure you have sufficient cash to invest. You also need to plan for surplus income for growing your investments and for taking advantage of opportunities that come up from time to time. Surplus cash will only come about byhaving more cash coming in and less cash going out.

You need these 3 ingredients to succeed in investing. You may have the cash but lack the financial knowledge, - this will increase the risk. Having no cash, but plenty of financial education and some financial experience is just as bad because nothing can happen unless you have cash to start the investment.

The main goal of investment is to make money work for you, where you are in control of your money and not the other way around.

While investments are just as risky as any other type of purchase, these risks can be minimised if you listen to experienced people and advisers, or by careful research and judgement before entering into investment. At times it is the investors who are the biggest risk because they take on investments with very little knowledge. They do not take the time to learn the basics and so recognise the traps, and also the opportunities.

How to Finalise your Investment Decisions
Some factors to help you select the right investments include the following:

" Always spread your risk. Diversification must be a vital part of your strategy..."

  • If you need to access cash within a short period, make sure your investments are with fixed interest, rather than the other alternatives.

  • Make sure you have a plan and stick to it. Do not change your investment habits because of what is happening in the market or because of the latest trend.

  • Even though you have a plan adjust your strategy as you go. For example, the longer you have to save (in other words, the longer you don’t need the funds) the greater the proportion of investments and growth assets you should have. On the other hand if you are getting closer to a position where you need the cash (e.g. retirement) then your investments should be low risk, even if the income is not as good as others.

  • Always spread your risk. Diversification is a critical part of any investment strategy. You need to spread your risk across several types of investment products so that if something happens to one of them it won’t affect the bulk of what you own.

  • If you don’t need the money for at least 5 – 10 years, you should look at moving into property and other share-based type management funds.

  • Your investments will depend on your age. If you are young, you will probably look at property - especially for purchasing a house.  During the time you have a family you will be paying off a mortgage, which is a compulsory form of saving, because the loan is reducing and the value of the property is increasing. Once you are in your 40’s or beyond you need to give serious thought to a retirement plan.

  • Remember that young people can ride out the dips and the highs because of the longer-term type of investment they can wear. At the worst, if their savings disappear because of investment loss they can always start again. However, the older age group need their capital to be secure because they no longer have the capacity to earn. Their investments should be products with security, even if the income is less. If disaster occurs they would lose everything because there is no hope of regenerating substantial income to start growing new investments.

  • A good adviser will point you in the right direction and may encourage you to invest more into solid local investments such as bonds, in place of fewer international shares. Risk avoidance would determine to a great extend the investment decision you finally make and in that regard these people will be very helpful.