Investing one’s money can be fun what the excitement linked to the rise and fall of prices and the tension and anticipation associated with picking and choosing the best investment options. Money management could never have been so thrilling. This feeling may not be universal but surveys reveal that more than 40% of youth in the age group 18 to 25 enjoy investing, and the figures are increasing.
It’s easy to feel happy and contented with a rising income and little or no responsibilities when one is young but the lucky are those that invest money early in 401k. But the 401k is by no stretch of the imagination the sole investment option. A little bit of risk taking can be useful and stock funds are a great way to make a sound start.
If you are planning on entering the huge world of canny investments here are some excellent tips coming from the masters that have been there and have done it all:
The first lesson is determining how much cash you have at your disposal
Never even entertain any ambition of entering investments till you have created at least six month’s emergency fund to take care of contingencies, pay down your debts and you are able to comfortably budget immediate daily expenses, and you have a comfortable disposable income. Then only should you plan for short term and long term goals?
Decide the level of risk that you can comfortably take
Before you go into various options decide how much risk you can safely assume regarding different types of instruments like savings accounts, bonds, and stocks. The accepted rule is that if you have a longer stretch ahead of you till retirement you can take more risk simply because you have more time at your disposal to overcome losses if any. That way you can aim for high growth stocks that assure greater returns, albeit at a higher risk.
Of course, it pays if you happen to study the investment scenario as it unfolds before your eyes, and you can take help from investment pros that have more experience in deciding the right investments. Your assessment of risk should not make you risk everything that you have invested; on the contrary, you should follow a path where investments can be mixed to create a relatively safer portfolio that assures a higher growth rate but can take a hit if circumstances move adversely.
Broad base your portfolio with diverse instruments of investment
There are well-established techniques for ensuring a diverse asset base in one’s portfolio. Relatively lower risk corporate bonds, for example, can be used to balance high growth high-risk stocks. You can cultivate a judicious mix of low cap stocks with large caps and a few international corporates. This is a sound strategy because young and dynamic local firms and international companies have registered almost 12% growth in recent years compared to even well-established local firms.
Experts watching the unfolding stock market scenario say it pays rich dividends to focus 65% of stocks in national companies as opposed to 35% in international firms that have a solid reputation in emerging markets. To make matters safer you can peg stock investments at 65% of your portfolio and leave 25% to bonds and mutual funds and market index stocks and leave 10% in bank savings accounts and Certificates of Deposit.
Prioritize a 401k investment for ensuring retirement security
In this area at is best to follow a mix of 401k and an Individual Retirement Account (IRA) as that will give your investments a better choice in order to make higher growth while you secure maximum benefits from the employer’s matching contribution in your 401k.
Improve your techniques of monitoring the progress of your investments
A portfolio of investments can’t be left to itself. Make an assessment by pouring over the quarterly reports on your 401k investments and check websites to ascertain how companies are faring vis a vis their competitors. An effective site is Morningstar that gives you detailed analyses on prospective stocks in emerging markets. A periodical review helps you get rid of laggard stocks and chose healthier substitutes. The best moment to overhaul a portfolio may be when you undergo major changes in life like shifting to a higher paying job, or when you tie the knot and consider raising kids.
Investing is a serious science but you can have your share of fun if you follow the tips we have enumerated. Remember that your goal is to make your money grow and you can give it your best shot as there may be a long stretch between now and your retirement. Security is certainly a warm feeling and investing properly opens up a safer, happier and more secure future.