Before starting your investing journey, you’ll probably get a little confused by all the ways you can try to grow your money.
How do investors choose stocks? Should you consider bonds? How about time deposits or pooled funds?
With all these and even more choices available, picking can be difficult, especially when you don’t know what would make one right for you.
If you’d like a beginner-friendly guide on how to choose an investment, there are 3 steps you can follow. But before we start, here are the things you need to be ready for your first investment:
What do you need before you invest?
1. An emergency fund worth at least 3 to 6 months of your average monthly expenses.
2. To be debt-free or able to pay current loan obligations. Housing loans, car loans, and even credit card bills are considered debts.
3. Disposable income for investment purposes.
4. Your investment risk profile.
How to choose an investment in 3 steps
Once you have what you need to invest, set aside some time to research and compare your choices. Follow the steps below.
Step 1: Learn about your options
Start by learning about all the investments you can choose from. You don’t have to know every last detail right away.
At the very least, you should understand how they work, and how you could make or lose money by investing in them.
This will keep you from investing in something that you’re not ready for or may not actually want. It can also prepare you for the possibilities – good and bad – if you decide to invest.
Know the characteristics of each investment so it’s easier to shortlist your options and take your best pick.
Step 2: Check your goal and time horizon
Find out how much money you want to have and when you need to have it. With your goal, time horizon, and investment amount in mind, you can estimate the potential returns an investment should offer to be worth considering.
If you see that your financial goal is a bit too ambitious, you can either scale it down or increase the money you’ll put in.
Take note that investing doesn’t have to be a one-time thing. For certain investment products, you can add money over time to help them grow and to manage risk.
Another thing to think about is how you’ll use the money. For example, if you’re investing for retirement, you could consider fixed-income securities, which offer returns in the form of scheduled payments.
Step 3: See which ones match
Finally, check your risk profile to see which investment vehicles you can consider. Remember that you don’t have to invest to the highest level allowed by your risk profile.
If you’re Aggressive, you can choose products that match an Aggressive, Moderate, or Conservative profile.
Investors with a Moderate profile can pick from products matching a Moderate or Conservative profile. Conservative investors are limited to Conservative-suited investments.
Look at your options and find ones with the potential to help you achieve your money goal. You may see competing products of the same investment type like Unit Investment Trust Funds or UITFs from different banks.
In this case, you’ll need to pick the one that you feel has the best potential. One way to do that is to look at the history of each product and compare their performance over time.
Keep in mind that returns are not always guaranteed. Even if you choose a top-performing investment, it may not grow as expected due to things beyond anyone’s control.
If you’re still unsure, consider seeking the advice of investment professionals. They may be able to guide you every step of the way if you’re on the fence about what type of investment you should start with.
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