Friday, November 12, 2010

3 Golden Rules of Investing

I believe everyone of us is working hard to earn a comfortable living. Besides working hard for the hard earned money, we should let our hard earned money works harder for us by investing the money. However, Investing our money does not mean our money will generate positive returns over the long run. Therefore, it is good to know the "3 Golden Rules of Investing" before we kick start our investment journey.

The 3 Golden Rules of Investing

First Golden Rules of Investing - Start With A Financial Goal
Regardless of the types of investments, whether or not it is stocks investment, bonds investment, unit trusts investment, property investment, Forex trading, options or derivatives trading, all these investment should be treated as a business venture. Every investment will need time, knowledge and money to succeed. Our financial goal plan represents our financial road map to success.

First of all, before investing, the golden rules of investing tell us that we should have a financial goal. A financial goal should contain the final targeted amount of money that we want to achieve, the time frame investment horizon, and the types of investment choices in our investment portfolio.

Achieve financial goals that we set in our life is to ensure that our hard earned money work equally hard as we work. Regardless of that financial goal is used to serve our children education, retirement, or lifestyle upgrade, all it takes is just a simple financial goal plan that is possible to make it into a reality. Always remember, a financial goal will succeed if it is investing with a purpose.

Second Golden Rules of Investing - Decide Our Financial Objectives
Basically, investment will give us two types of returns, the dividend payment and capital growth. We will have to decide which financial objectives that we are targeting. For example, retired investors whose age are above 55 prefer to have steady income stream such as dividend payments from their investment portfolio rather than large asset value growth. Whereas, young investors age between 22 to 40 tend to have bigger risk appetite, they are the investors category that seek capital growth rather than dividend payments.

Third Golden Rules of Investing - Understand Our Risk Profile
It is important to understand our investment risk profile because investment with higher return will also has higher risk. Therefore, we have to understand our investment risk appetite, and position ourselves to have the possibility to experience losing money during some market cycles anytime. Especially when we need to liquidate our investment portfolio at the time the market turns out to be not in our favorable economy conditions

It is recommended that investors who are conservative or with low risk profile are better to invest in different types of bonds, bank fixed deposits, or some capital guaranteed securities.

Investors with moderate risk appetite can invest in balanced funds unit trusts, or blue chips stocks. An investment portfolio of 40% bonds and 60% equity investment can be a good investment portfolio for this category of investors.

Aggressive investors are those who can tolerate high investment risk. Forex trading, options and derivatives trading, or second liners stocks trading are those investments that this investors category can consider. Simply saying, they prefer an investment portfolio that contains more than 80% equity, derivatives or indexes investment. They can withstand short term high market volatility compared to conservative investors.

By having the above "3 Golden Rules of Investing", it means that we are investing with confidence. We are able understand our current investment position, and be able to predict how much we can achieve along our investment journey in the long run.

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