What should I take into account when I start investing?
- Risk vs. Return
- Asset Allocation
- Diversifying
- Monitoring Progress
The first step in the investment process is to figure out what sort of Return on Investment (ROI) that you are seeking and to determine what level of risk that you are willing to take.
The risk that you are willing to take and the size of the ROI that you receive are correlated. In order to take a higher risk, you must have a reasonable chance of a higher return. The size of the risk will be affected by many factors in the market, and it is recommended that you consult trusted professionals.
These professionals will have ideas and recommendations for your investment portfolios, but never invest more aggressively than you feel comfortable with.
Asset Allocation is the selection of assets from across the asset classes: stocks, bonds, and mutual funds. This is a way to minimize risk. It ensures that if one of these groups takes a drastic downturn, you still have investments in the other sections and hopefully won’t take large losses. It is recommended to allocate through at least 5 types of classes.
Diversification is similar to asset allocation, but within the asset class. For instance, diversification would be buying 15 or 20 different stocks, with the same purpose in mind as asset allocation, to minimize risk and to make sure that if something tanks, it doesn’t take your entire portfolio down with it.
You can start by examining your trading records and ensuring that all of the trades went through at the prices that you instructed and with the correct commissions. Make sure to keep a good paper trail of all the transactions that occur in your portfolio just in case you ever need to contest anything.
Keep tabs on how your assets are performing. If they seem to be underperforming, you may want to change your investments to some that may be more lucrative. You may want to also check to make sure that the investments that you own are in line with your current investment strategy. Your strategy may change over time. Be sure to compare your investments to your current situation.