By Tamia Gallego
Investment is defined simply as the use of money in the hope of making more money.
Investing can mean different things to different people. Some people invest in families as a way to ensure care for parents in their old age. Some people invest in good education in order to secure a well paying job. Some people invest in products such as shares, property, commodities and cash.
There are different investment strategies such as buy, hold and wait, buy and sell, sell and then buy (short), options (trade) etc. Investors are classified according to the products and strategies they take. Some investors are known as a share trader, a real estate speculator, coin collector, a day trader, and a saver who is happy leave their money in an online saver account.
Investing is like a well balanced diet. Just as we need the right types and amounts of food and fluids to provide nutrition and energy for maintaining development of our bodies, so do investments. They need to include multiple investment products and strategies to minimise risks involved in building a portfolio. This is what is known as a diversified portfolio.
A diversified portfolio involves allocating assets amongst categories such as shares, bonds and cash. How you decide which asset allocation fits you best is a personal decision. The decision largely relies on a number of factors such as your age, your goals, your appetite for risk and your time horizon.
According to AXA “It’s not when, but rather for how long you invest which will determine how effectively your money grows. Many people follow the old adage that it’s time in the market, not timing the market, which matters most.
By maintaining a long-term view of your investments, you can reduce the impact of short-term market fluctuations and, over time, enjoy higher growth.
For example, if you were to invest $200 each month at five per cent interest, your total interest at the end of one year would be $2,466, less tax and management fees. However, this figure would increase to $13,658 after five years and $31,186 after 10 years. As you can see, there’s a lot to be gained by giving your investments time to grow and mature.
A long-term investment strategy has the added advantage of compounding the interest you earn on your investment”.
Investing is not difficult to get into. You can start off with a small portfolio, say when you have about $2,000 and slowly build from there. They key is to let compound interest work its magic over time. This is why the sooner you invest, when you have the some spare funds, the more advantageous it is if you choose the right investment strategy. Remember to seek a professional advice before making any decisions.
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