If you’re looking for a new investment and you can’t decide what to go with, what can you do to ensure your choice is a good one? There are lots of lists out there purporting to showcase the best around but the best option is different for different people. Answering these five questions will help you to work out what’s right for you.
How patient are you?
Different investments require different amounts of time before they’re mature and are producing great dividends or are ready to be sold. As a rule, keeping assets for longer means that they make you more money overall, but whether or not that’s practical for you will depend on what you need money for. Bonds and property investments are usually slow to mature. Stocks and commodities vary. CFDs and forex can take just a few days – or hours.
What’s your risk tolerance?
Every investment carries a different level of risk. In general, those investments that are quicker to grow are riskier, but in many cases high-risk investments also offer high gains. Your risk tolerance depends on how much money you can afford to lose. Accepting a greater level of risk – within reason – increases the likelihood of you enjoying significant success within a short time period, but you should always be aware that things could go wrong.
How active do you want to be?
Different investment types require different levels of activity. Buy the right stocks and you can just sit back and let them look after themselves for years, reviewing them periodically to see if it’s worth buying more or if a golden opportunity to sell has emerged. Most CFD trading tips, however, advise trading several times a year or even several times a week. That needn’t be a chore – some people enjoy it. Consider what you enjoy and how much time you have available.
What’s your knowledge base?
If you don’t have much experience as a trader, that doesn’t mean that you have no useful skills or expertise to draw on for trading. If you’ve worked in a business dealing with metals, for instance, you may have a lot of insights you can bring to selecting good assets from the commodities market. If you’ve worked in some aspect of the real estate business, you may be well suited to investing in property. Use your existing knowledge to give yourself a leg up.
What investments do you already have?
To become a really successful investor you need to think not just about individual assets but about how they fit together. Diversifying asset types will give your portfolio more stability. It’s an especially good idea to balance slow maturing, low-risk investments with more volatile ones so that you have both long and short-term income with low overall risk. You can use forex and CFDs to hedge your investments, reducing volatility, and trading across different market sectors and geographical areas will make you safer from the effects of economic downturns.
Looking at all these factors together, you should be able to get a clear picture of your ideal investment. Remember that this could change over time and ask yourself these questions again next time you’re ready to make an investment move.