Investment Tips

November 23, 2010Investingby EconomyWatch

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For those who are new to the world of investing, it is very important to understand the importance of asset selection in portfolio creation. Useful investment tips may help amateur investors to more appropriately prioritize investment options and to achieve the right proportion of various instruments in the portfolio.

 

Some Investing Tips

Here are some investment tips that can help you achieve the right portfolio mix:

Financial Plan: It is important to begin with the formulation of a financial plan designed to specify and help you meet your financial goals. All financial decisions should be made according to the particular goals and plan. This plan may include details of the various investment options, tax savings and insurance cover.

Risk Tolerance: Based on their financial health and attitude towards risk, investors may be aggressive, moderate or conservative. Aggressive risk takers aim at higher returns, while conservative risk takers protect themselves from price volatility by accepting lower returns. It is important to assess your risk tolerance before you make a decision to invest.

Diversification: As the saying goes, “Do not put all your eggs into one basket.” Spreading investments across variousinstruments, sectors and segments of the market reduces an investor’s risk exposure. The extent of diversification would depend on the risk tolerance of an investor. A well-diversified portfolio is better for investors seeking steady returns over the longer term.

Simple Portfolio: While diversification is advisable, one should limit the portfolio to the number of instruments onecan handle.

Focus on the Long Term: The investment horizon should be long term to efficiently cope with volatility. While everymarket will have its ups and downs, remaining focused on the long-term goals and following a disciplined approach help protect investors against substantial losses.

Age of Investor: Investors of different ages follow different investment strategies. This is because their priorities, responsibilities and risk bearing capacities are different. Most investors in their twenties do not have children and have notcommitted to purchasing a home. They have more liquid cash and can invest a large portion of it to fuel future income. Most investors in their thirties have spouses and children. They may also be paying towards a mortgage and an insurance cover. Such investors would be weary of market volatility. People in their forties and fifties start enjoying much higher salaries. However, while older investors have more disposable income to invest, they also have shorter time horizons to retirement, and will therefore tend to prefer lower risk fixed income investing strategies.

Portfolio Review: A periodic review and adjustment of the portfolio according to developments in the market is a good practice.