Investing money can be one of the best ways to achieve financial goals such as retirement and building wealth – but for novice investors it may feel intimidating and daunting.
That is because traditional investing entails purchasing individual stocks and building a diversified portfolio, an approach which takes considerable time and knowledge. But there are simpler approaches available for novice investors looking to get into investing.
Determine Your Risk Tolerance
Risk tolerance should also be an essential part of planning an investment strategy, whether done on your own or with professional assistance. Simply put, risk tolerance measures how much volatility is acceptable with investments.
People who can tolerate losses might be better equipped to take on more risk and potentially reap greater returns. It is also important to remember that your risk tolerance can change over time as significant events in your life occur, so keep this in mind when investing.
Asking yourself questions like, “How would I react if my portfolio dropped 20 percent this year?” is an effective way to assess your risk tolerance and create an investment plan you will stick with even during volatile market periods.
Invest in Diversified Portfolios
How2Invest diversification can help mitigate risks by creating a well-rounded portfolio. Financial experts often recommend diversifying not only between asset classes such as stocks and bonds but also within each category – for instance by including stocks from different sized companies, industry sectors and geographies in your investments.
An asset-diversified portfolio is vital as assets tend to move together in tandem. This makes a diversified portfolio more resistant to economic instability; for example, when oil prices spike up, energy stocks may perform better to compensate for falls elsewhere that depend on fossil fuels.
Through major brokerages, you can find an assortment of managed products at no charge to diversify your portfolio.
Monitor Your Portfolio
Conductor of Your Financial Orchestra As the conductor of your financial orchestra, it is essential that you maintain control over the rhythm of your investments’ rhythm. Portfolio monitoring provides insight into when they require fine-tuning or adjustments; regular portfolio reviews, strategic rebalancing exercises, performance measurement studies and risk evaluation can all help contribute to creating financial harmony.
Excel spreadsheets and budgeting apps offer convenient methods of tracking investment performance, but many investors prefer working with an advisor who adds human touch and assists with goal setting and devising a plan to reach them.
Journeying toward financial success is rarely straightforward, but with careful management you can stay on the right path towards your goals.
