1. Understand your personal investment objectives
Financial experts identify five typical objectives. Your investment objectives may fall into more than one of these categories. You should know your primary objective when making your investment decision. Take a moment to review these objectives and determine their importance to you.
Preserving capital - you value the safety and stability of your investments.
Growth - your focus is beating inflation and maximizing the return from your investments.
Maintaining liquidity - you want easy access to your money.
Reducing tax - your goal is to reduce your overall tax burden.
Income - you want to generate an income from your investments.
2. Consider the basic principle of diversification
It's often said ... "don't put all your eggs in one basket." Experts agree that spreading your risk over more than one type of investment reduces your overall risk and, for most people, provides better long-term growth.
3. Remember that a good investment program focuses on your personal investment strategy
Your investment goal may be 15 or 20 or more years away or it may be more immediate. Responding to short-term fluctuations in the market can jeopardize your long-term rate of return. You should evaluate your portfolio on a regular basis to ensure it continues to meet your needs and make occasional adjustments if your personal circumstances and strategy change.
4. Understand the concepts of risk and reward and your tolerance for risk
Risk is your willingness to accept potential loss in your investment portfolio. Your reward is the potential return you can expect. All investments have some element of risk. A 'safe' investment will protect your invested principal and provide a minimum rate of return. A more aggressive investment, on the other hand, may offer less protection for your principal, but it brings the potential for greater returns. When choosing your investments, understand the level of risk you are willing to take and keep in mind the trade-off between risk and return.
5. Consider the principle of dollar-cost averaging
By investing a constant dollar amount on a monthly basis, you average the cost of your investment over time. This allows a consistent pattern of investment both when the market is high and when it is low. This will even out some of the movement. Dollar-cost averaging allows you to take advantage of the fluctuations in the market without worrying about the timing of your transactions.
6. Always consult your advisor when you make major investment decisions
He or she can provide the advice and the information you need to help make these decisions.
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