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It is common knowledge that investing your money is one of the best ways to build long-term wealth. Research indicates that about 75% of young people in the United Kingdom have invested or are considering investing. You don’t need to be a financial guru to succeed in investing. But knowing a lot about the risks and opportunities you face as an investor is essential to better plan for the future. Below are some of the vital things worth considering before making investment decisions this year.
Investment fraud involves scammers tricking investors into thinking they are making excellent investments with the prospect of high returns. Therefore, this fraud is one essential thing to consider. When making investment decisions to ensure that you do not fall victim to it. According to analysed data between April 2020 and March 2021 from Action Fraud. Investment fraud was responsible for most of the cash reported lost during this period, at £535 million. Consequently, always be sure that whatever investment you make is a good and legitimate one. That won’t cause you to incur any financial losses.
For starters, it is essential to learn the various types of investment frauds you can fall victim to. Advance fee fraud, pyramid and Ponzi schemes, market manipulation fraud, and pump-and-dump schemes are some of the deceptions to look out for. Furthermore, if you invest in forex, it would be best to learn about unique forex trading scams like forex robots and signal seller scams, so you don’t lose your money. Finally, remember that anything that is too good to be true is most likely a scam as a general rule of investing. Therefore, avoid opportunities that promise high investment on your returns at low risks. It is also advisable to avoid companies that pressure you into making quick decisions, offer commissions for referrals, and don’t allow you to call them back.
An emergency fund
Many investment vehicles keep your money tied up for several years before you can reap the fruits of your labour. However, emergencies that need to be solved with money will nonetheless arise in your daily life. Consequently, it is prudent to have cash on hand to solve these issues as and when they pop up. Therefore, create an emergency fund containing up to six months of your income to handle unforeseen circumstances.
You cannot build an emergency fund overnight. So commit to gradually setting aside a particular amount each month to accumulate the six months savings you eventually need. However, note that being in a position to cover your unexpected expenses is your reason for creating an emergency fund in the first place. Therefore, this money should be liquid and easily withdrawable when needed most with no delays. Also, use this money in hours of crisis or unplanned scenarios only and not for routine expenses.
Every investor faces a financial risk when investing, which is basically the possibility of revenue loss. Naturally, not everyone is comfortable taking certain types of risks, even for the promise of high rewards. Therefore, it is prudent to check your risk appetite or tolerance to ensure that it aligns with your plan and financial goals. Higher potential returns are mostly double or nothing, as a high possibility for more money in your pocket equally means a high potential for empty pockets. If you have a high risk tolerance, you can take on opportunities like hedge funds, forex trading, promissory notes, and crypto-assets. On the other hand, government bonds and treasury bills, corporate bonds, and Warren Buffet-endorsed index funds are some of the best investment opportunities to consider as a low-risk investor.
The adage “Never put all your eggs in one basket” is pretty relevant to investors, so diversification is also another important thing to consider when making investment decisions. You can protect against hefty financial losses by adding asset categories with returns that move up and down under unique market conditions to your portfolio. Historically, the returns on the three primary asset categories (cash, stocks, and bonds) don’t move up and down simultaneously. As such, market conditions that cause an asset category to perform excellently can cause another to have poor returns. Therefore, investing in more than one asset category reduces the risk of losing your money because you can counteract your losses in an asset category that fails with profits from another that succeeds.
It would be best if you also had a direct plan for investing before taking any decisions. Your strategy gives you perspective on your investment goals and how to achieve them. It also reduces the likelihood of making investment decisions based on emotions. There is no denying that investing can sometimes be emotional; at times, you can be tempted to alter your investment strategy. Because a part of your portfolio is performing poorly, or you think the market will plummet. These events can trigger an impulse reaction, like selling off your assets. However, having an investment strategy prevents you from making rash decisions that you may regret in the future. For instance, if you adopt a long-term investment strategy. You won’t allow short-term market fluctuations to influence your crucial decisions. Potentially destroy what you set out to accomplish in the first place.
People invest for various personal reasons, so it is best to determine yours before taking any investment decisions. For starters, sit down and honestly review your entire financial situation. Especially if it is your first time making any financial plan. Your objectives can help you determine the right investment decisions to take for the best results. Therefore, figure out your short and long-term goals on your own or hire a financial professional to assist you.
Numerous factors can significantly impact your investments. So it is best to take your time to research these factors and understand them to make informed decisions. Therefore, consider factors like the unemployment rate, inflation, and interest rates in the domestic and global market since they can influence your investments. Political events and economic growth are also worth considering, so keep this in mind. Elon Musk’s tweets may also be worth monitoring and considering if you are a crypto investor. Since they significantly impact the cryptocurrency market.