4 Tips to Help You Choose an Investment

With the state of the Australian market now fully recovered from the previous crisis, it now seems that the economy of this continent-country is on a steady rise. This means that more and more individuals now have a surplus in their budget, which just might make some of them consider the probability of becoming investors.

Nonetheless, this is a huge step that you might not be ready for, which is why you need to understand all that this entails. Here are several essential tips that will help you choose an investment and become successful at what you do.

Consider your financial situation

The first thing you have to do before you even start considering an investment, is to consider your previous, current and future financial situation, to the best of your abilities. The most efficient way to do so is to draw a personal financial roadmap. This includes defining your goals and objectives, finding role models, preparing for moments of crisis (which is something we’ll thoroughly discuss in this post) and, of course, avoiding potential frauds.

Now, just because you currently have a surplus in your budget or if your company has just started generating some serious profit, it still doesn’t mean that the time is right for you to start investing. Before this, you need to consider paying off your debts (especially if they have large interest rates), create an emergency fund or even plan towards an early requirement. Some of these steps should be mandatory prior to making alternative investments, while others should be at least considered.

How diverse is your portfolio?

The next important thing that you have to ask is the question of how diverse is your portfolio. This is a method that insulates you against a potential crisis of the market and the loss of your total investment value. Unfortunately, those with a gambler-mentality usually have a hard time accepting this method. In their mind, the best case scenario is a situation where they find a single lucrative investment, put all of their money into it (including their savings account and their 401K) and then capitalize many times over. In reality, this is not only unlikely but also incredibly risky.

Still, just putting your money in two different stocks hardly counts as diversifying a portfolio. You see, when the real estate market crashed, all the real estate companies suffered a loss of value, some stocks were even brought to zero value. This is why you need to invest in markets that abide by different rules, so when one market embarks on a downward spiral, the rest of your investments don’t follow in suit. Needless to say, this has a hypothetical downside, as well, due to the fact that growth of one investment won’t necessarily translate to the rest. In other words, you’re limiting both your losses and your gains.

The best way to diversify your portfolio is to split it between stocks and commodities. In fact, the majority of investors suggest that keeping at least 10 or 20 percent of your total assets in gold or silver might be a good idea. Sure, gold and silver are the two most common precious metals that people invest in, yet, platinum and palladium may be as valid options. Lastly, you shouldn’t even restrict yourself to metals either. By finding a reliable Australian diamond broker, you could make purchasing diamonds into your way of diversifying your investment portfolio.

Consider the length of the investment

One thing you need to know about investing is the fact that different options have different length of an investment. For instance, when day-trading, all your funds are in your hands at the end of the day (although the volume depends on the successfulness of your day-trades). On the other hand, with position trading, things are somewhat different. For some investments, it may take years for you to see a profit, which means that you have to be able to hold out without the money you’ve invested for two, three or even five years.

With gold or diamonds, things can be even more long-term, seeing as how the length of the investment is potentially indefinite. After all, diamonds, coins and bullions can even be passed onto the next generation, while they could also be cashed in on the next opportunity. This is why some people believe that commodities are more reliable. Even in a hurry, they can be just stuffed in a bag and carried around, which gives an unprecedented control over your assets that no other investment can match.

Risk-reward ratio

Now we come to something that virtually everyone knows, with or without a background in investment. Namely, the bigger the risk of an investment the bigger the potential reward, while with greater safety comes a tad more moderate ROI. Earlier on, we talked about a gambler-mentality in a pretty derogative way. It’s quite easy to tell which of these trends attracts these natural-gamblers more. This alone is a reason why it’s much smarter to go against this urge.

Just think about it, an investment money is essentially not supposed to be your main source of income. Remember what we talked about in the previous section? This is money that you should be able to do without for years and years to come. This investment is a project that’s supposed to become a stream of passive income somewhere in the future, so there’s really no point in rushing anything.

In conclusion

The last thing you need to keep in mind is the fact that the above-listed four are merely general directions. This is why each investment you intend to make deserves a research of its own. Needless to say, this is also a reason why the number of options for diversifying your portfolio may be fairly limited. Sure, in theory, you can just invest in as many different stocks, commodities, small businesses and venues as you like, yet, keeping track of all these industries and trends is simply overwhelming. Make no mistake, if you really care about your investment money, then this is something that you absolutely have to do.

This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

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