3 Factors which determine your investment strategy
You may be wondering what is the right investment strategy for you, but any advice on which to invest is right for you, without knowing anything about you, can actually be wrong. There are basically three factors that determine which investments are right for you, they are:
1. Your age
2. Purpose for the money
3. Your risk profile
Beginning with your age. If you are 65 years old, it would be unwise to invest all your money in a growth fund because if the market takes a dive such as during the 1987 sharemarket crash and, to a lesser extent, during the Global Financial Crisis. In the 2000s you have less time to overcome these failures while the youth have time on their side.
The purpose for the money is the second factor.
Decide whether you require the money in the short-term, medium-term, or long-term.
Short-term would be up to a year.
Medium-term is 1-5 years
Long-term is longer than five years
Short term expenses would be, a bank account for emergencies, a holiday within a year, dental expenses, or t pay for the kids schooling for a year.
Medium-term would be savings for a car.
Long term would be your retirement fund, saving for a house deposit, or saving for the trip of a lifetime.
Your risk profile is a determining factor in which you invest your money. If the idea of a diving sharemarket will give you sleepless nights, then investing growth shares in the sharemarket is not for you. A better option would be money management where you will be given a choice between growth, balanced and conservative money.
It is important that the cost of the debt and not the interest in debt is that. Interest adds the cost of goods purchased with borrowed money, and it adds to a fortune over the course of a lifetime for consumables. This is called bad debt because the value of the commodity decreases over time.
However, there is such a thing as a good loan and it is your first home as the value of the property increases during the lifetime of the loan but even for some people it is not always a good option if you are a type Let’s live momentary lifestyles.
“Everyone is for their own good,” so only you know what you need to do that your personal circumstances are the determining factors that govern where it is best to invest your savings.
You have to do your homework before investing in anything, be it sharemarket, managed funds or gold. There is a lot of information available about everything so far, and that includes finance. It is simply a matter of learning the ropes and having a financial strategy that suits your personal circumstances.
Most people are able to save money, but having goals and choosing the right investment for your savings can increase your wealth and help you reach your goals early. One size in life does not decide where to invest your money.