Building wealth and making more money is a financial goal that just about everyone on the planet has. If you want to build your wealth, one of the most important things to do is to invest. Investing can help you beat inflation, while also helping boost your financial security both today and in the future.
However, before you go picking the specific stocks or funds you want to invest in, you need to think about your investment strategy as a whole. Investing without a plan or strategy can often be a recipe for disaster.
Without any further ado, let’s go over a couple of tips to help you choose an investment strategy and plan that is right for you.
When it comes to investing, you have a few different options. You can build up your whole strategy from scratch, but this can be a lot of work for some. Not only that, but if you are new to investing, you may not know where to start.
Because of this, the first thing you should think of is how much assistance you want. You can go with a financial advisor, choose funds or investments that are managed or even chat with friends and peers about investments.
There are also Robo-advisors which can be a great “set and forget” way to invest money. Most popular Robo-advisors include SoFi, Wealthfront, Betterment, Acorns, Stash, and many others. Most report how well they are performing so you can have an idea of what to expect. In addition, there are external resources that review and scrutinize their performance, like this Acorns portfolio performance review and many others.
Some people may be okay investing all on their own, while others might like some guidance. Both are great options and can help you build your wealth over time.
A big part of choosing how you want to invest is understanding your risk tolerance. No matter the investment, there is some risk involved. The higher the potential returns and reward of an investment, the more risk is involved, generally.
There are limited ways to escape risk entirely, so always know your level of risk tolerance. This is essentially how comfortable you are with risk. Some people are okay with a ton of risk in their investments, while others like things that are a little safer.
There are many things that can impact your risk tolerance such as your income, your personality, and even your comfortability in the industry. Another huge factor in determining your risk tolerance is your age. In most cases, the older a person is, the less risky they are. Someone who is nearing retirement age may not want to put their savings at risk, like a younger 25-year old might.
Take time to think about how comfortable you are with risk, and this will help you identify the better investments for your unique situation.
Finally, another aspect of choosing the right investment strategy for your needs is your asset allocation. When investing, most people will diversify their investments in order to reduce risk. They might have some stocks, some bonds, and some index funds, or any number of other investments. This diversification is called asset allocation.
When coming up with your investment strategy, you need to think about how exactly you want to spread your money amongst the different asset options. Do you want 80% stocks and 20% bonds? How about 40% in index funds and the rest in real estate?
The choice is yours and will have a lot to do with your risk tolerance, but also how comfortable you are investing in different assets and how much you believe they will grow.
Investing is an important part of building wealth, but can be intimidating for some. By deciding how much help you want, determining your risk tolerance, and deciding on your asset allocation, you can ensure you find the right investment strategy for your needs.