Investments – The Path To Achieving Your Financial Goals

At the beginning of the New Year many of us have probably made a resolution to be more money wise this year. One crucial aspect of being money wise is investing your money. Investing simply means putting your money to work so that it generates more capital. You buy or sacrifice something today, with the intent of creating a stream of wealth in the future. There’s usually an element of risk attached, because the more you’re prepared to take a gamble, the better the returns will usually be. But before you take the plunge, there are a few things you will need to consider.

Firstly, are you prepared to take the risk of investing? If not, you might feel happier with the interest you get from a savings account.

Secondly, remember that investment is a long-term plan. If the stock market crashes, you might have to wait some time before you get your money back or make a profit.

Ways to Invest
There are several ways to invest your money. Here are some of the most popular.

Stocks and Shares
By putting your money into shares, you’re giving companies your money to help them run their business. In return, if they are successful and their share price goes up, you will benefit from the rise in value. Equally, if the company’s value falls, you’ll be losing money. Right now, we’re in a very unstable corporate environment and many companies have lost value. Be careful investing unless you have received good advice!

Unit Trust and Investment Trusts
You can see with shares, putting your money into one company can be quite dangerous. To combat this, Trusts do three important things:

First, they put your money into several companies at once. That way, you’re spreading your risk across the fortunes of many companies: some might lose money, but some will rise in value.

Secondly, a Trust contains not just your money, but many other people’s too. You’re joining a whole bunch of people all committing their cash. Together you have more buying power to spread your risk across companies, and this larger pot of cash usually gets the Trust a better deal.

Finally, your funds will be looked after by a Fund Manager. It’s a Fund Manager’s job to spend time looking for the best place for your cash – day in day out – which means you need to know much less about the stock market than if you were investing privately.

Bonds
These are a particularly safe investment; in fact, you know exactly how much you’ll get back before you even buy them. Bonds are a loan from you to somebody else 9usually the government), for a set length of time, usually between three months and five years. But, because there’s no risk, they don’t pay back particularly well.

Property
Buying and selling property can be lucrative, especially since in many areas property prices have risen dramatically. You will need a lot of money to start with, and if the value of your property falls, you stand to lose a serious amount of money.

Other Goods
There’s a market for most things people want – antiques and collectibles, land, fine wine, etc. But you must understand that buying goods as an investment isn’t the same as picking up a bargain and selling it at a profit. Bargains are rare, and usually rely on the seller being stupid. The value in investing is picking goods to buy which grow in value by themselves, because demand for them grows over time.

Getting Help
Don’t jump into investment without getting good advice from someone who knows their stuff. Get help if you need it. The do-it-yourself approach may not be suitable for everyone. If you try it and its not working, or you’re afraid to try it at all, then you should seek professional assistance.

Your first port of call is an Independent Financial Adviser. They are qualified to give you entirely impartial advice about your finances, and recommend a course of action.

Arm yourself with knowledge. Always do your homework. Understanding financial matters and those that could affect you. Understand your current investments and the risks associated with them. Be cautious when evaluating the advice of anyone with a vested interested.

If you are going to invest in stocks, research companies until you understand them. Remember investment does involve some amount of risk, so choose carefully and make sure you have done your research.

The Cycle Of Your Financial Life

We won’t call any names, but due to recent experiences, many of us like to ask our investment advisers, “So, how much interest do you pay each month?” And even if you haven’t asked, you thought about it. The thing is, that particular question ignores one basic fact of financial life – the type of investment you really need depends on where you are in the life cycle.

Now, assuming that you sorted out your insurance and cash reserves requirements – which are really the basics of financial plan, we can begin the discussion of investing to maximize your return and minimize your risk. And let us say right here that it is best to speak to a licensed financial adviser to help you determine your return and risk requirement.

Where you are in the life cycle, determines where you are best served by your financial adviser. Typically, younger persons can invest more aggressively so that they can grow their funds to meet their needs. But what if you are uncomfortable with risk? Then no matter your age, you will look to more conservative investment options. For those in retirement, years of savings can be wiped out by poor investment decisions or in the case of global meltdown, actions that you have no control of.

That is why, a complete financial plan is important. But prior to getting there, it is important to have an understanding of where you are in your life.

Accumulation Phase
The ages of 25 to 35 are considered the typical accumulation phase. Now some of us are late bloomers and so don’t really start to get serious until the big 4-0. That said, during this phase, it is characterized by the following constraints:

• Early to middle years of working careers
• Net worth is typically small
• Debt is typically large (courtesy of student loans, car loans, etc.)
• Long investment horizon
• Focus on accumulating assets to satisfy immediate needs (deposit for house, children’s education, etc.)

Consolidation Phase
They say that life begins at 40 and so does the consolidation phase. Actually, financial experts consider this phase to actually begin at 45 and are characterized by the following:

• Past the mid point of their working careers
• Have paid off much of their outstanding car and student loan debts
• Mortgage is main debt burden
• Balancing children’s education with retirement planning
• Income typically exceeds expenses
• Investment horizon is still long with 20 to 30 years before retirement

Spending/Gifting Phase
These days, retirement from one career might be the beginning of a whole new career. The traditional view of retirement where by you are simply sitting around and doing nothing is a thing of the past. Nevertheless, there are some characteristics that define retirement:

• Health care expenses are a greater part of income
• Income comes from early investing activities or company/state pension
• Greater concern about capital preservation while balancing exposure to inflation
• Excess assets can be used to assist friends or family