There’s neither a perfect age nor a set deadline for someone to start investing their money. But many financial experts agree that it’s good to explore investments when a person has enough disposable income. If you’ve reached a point where you can comfortably save between 10% and 15% of your monthly income for purposes other than essential spending, then the time may be ripe for you to explore investing. Among the legitimate investment vehicles that you can choose from are stocks, bonds, and other fixed-income securities, mutual funds, unit investment trust funds (UITFs), variable universal life (VUL) insurance, and high-yield savings accounts.
But once you start investing, it will not be enough for you to pool your money somewhere and assume that all will be well. Some investments will take more time, money, and effort to maintain than others. Moreover, some types of investments pose an additional degree of risk to the investor. Not taking these factors into consideration may result in a stagnant investment journey at best, and steep financial losses at worst. You may even end up regretting your choice to invest your money—which is the furthest thing from what you want.
That said, how can you maximize your gains from your investments and prevent them from going south? Here’s some perspective from Robinsons Bank on the direction you should be taking with your investments, as well as the top investment pitfalls to avoid.
What Are The Most Important Things for You to Know about Your Investments?
First, before agreeing to invest your money in any kind of investment vehicle, you should set the particulars of your investment journey. Your success in protecting your financial future depends on how well you understand your investments and how adept you are at managing them.
Make sure you’ve ironed out the following for yourself before you pursue investing:
Your Personal Investment Goals
Everyone wants something different from their investments, and no two investment journeys will look exactly the same. Your reasons for investing your money may pertain to taking better care of your family, furthering your education, traveling the world, or simply mastering the complex world of finance. Whatever the case, your investment goals should be perfectly clear to you before you start setting money aside. You’ll get the best sense of how to protect your finances and how to make the best financial decisions if you know exactly what your goals are.
The Best Types of Investments for You to Have
Second, you should learn about the different investment types and determine which ones are the most ideal for your financial situation. Something as simple as a good choice of investment vehicle can actually go a long way to protect you from financial loss. For example, if you know for sure that you’re a hands-off kind of person when it comes to money, the safest investment may be a fixed security asset like a treasury bond. A novice investor may also feel comfortable with UITF and UITF Philippines investments, especially since these open-ended trust funds come with the oversight of professional fund managers.
How Much and How Often You’ll Invest
Third, you must decide how much money you’re willing to put up for your investments and how often you’ll need to add to your investment funds. Earmark a certain amount or percentage of your income to dedicate to your investments, and prepare to add to the fund at a fixed rate, for example, every month or every quarter. Consistency in these two factors will likely maximize your gains and keep your investments from fizzling out.
What Your Risk Appetite and Risk Tolerance Are Like
Last but definitely not least, you have to figure out your risk appetite and risk threshold for investing. Your risk appetite pertains to how much financial risk you’re willing to take on in your investments, while your risk tolerance involves how much risk you can endure before your finances go into the red. Quantify these two before committing to any arrangement, and use them as metrics for evaluating how risky an investment is for you.
The 7 Biggest Investment Pitfalls and How to Avoid Them
Many people have had their hearts broken—and their wallets emptied—due to poor financial decision-making with their investments. Throughout your investment journey, try to steer clear of these seven investment pitfalls:
Bringing Your Emotions into Major Financial Decisions
Money matters, including those that involve investments, are best settled through logical and objective means. When one lets their emotions color their financial decision-making, it can often lead to disastrous results. Be careful about making important investment-related decisions in times of extreme hype or panic. Try not to be rattled by these, and only touch your investment funds when you’re sure that you can keep a cool head.
Taking Every Single Piece of Financial Advice You’re Given
Given how popular investing has become, there are a lot of people out there who are willing to give you financial advice. But the fact of the matter is, not all financial advice will be useful to you. If you agree to every single suggestion given to you without really thinking it through, you could unknowingly endanger the success of your investments. Learn to evaluate financial advice according to its relevance to your situation and prioritize the input of certified financial experts.
Relying on Outdated or One-Size-Fits-All Investment Strategies
On the topic of recommendations for what to do with your investments, some of the advice you’ll get will be either too outdated or too general to be helpful to your investing objectives. Be wary of investment gurus who try to sell you catch-all strategies as well as those who still subscribe to outdated investing beliefs (e.g., only investing when one is “rich” enough). Once you acknowledge how complex investing can be and how much you’ll need to learn in order to be up to date in your investing journey, you’ll be better protected from the damage that poor investment strategies can wreak.
Overreliance on Just One Type of Investment
Investing strategies evolve over time, but if there’s one that can be judged as timeless, it’s the strategy of not putting all of one’s eggs into one basket. Though it’s wise to start off with only one type of investment, it may not prove advantageous to pin all of your hopes on it. Most investors aim to gradually diversify their investment portfolios so that their risks are diversified as well. You may be able to safeguard your overall investment fund by taking their cue and branching out into different asset classes. That way, even if one investment doesn’t do so well, the others can serve as cushions.
Not Accounting for Investment-Related Expenses
One mistake that many novice investors make is failing to account for investment-related expenses like commissions, brokerage fees, advisory fees, and trading fees. These charges can seem invisible when one is caught up in the excitement of investing—that is, until they’ve realized that their funds have been drained. Avoid this mistake by calculating how much money you’ll need for investment-related expenses on top of the investments themselves. If you think you’ve already spent a lot on your first few investments, protect your wallet by holding off on other types.
Treating Your Investment Funds Like Allowances
It’s a great feeling to have extra income and to have more options for what to do with your money. But if you’ve got your sights set on investing, you must resist the temptation to use the funds for anything else. Treating your investment funds like allowances and only investing them when you feel like it will result in a huge setback for your investment journey. Do your best to develop good financial discipline and to compartmentalize the funds meant for immediate spending versus the funds meant for investing.
Not Staying True to Your Original Investment Goals
Remember that you’re not investing money simply for the sake of investing and that there are specific investment goals that you’re trying to achieve. The farther you stray from achieving these goals in favor of other things, like following the most hyped-up financial trends, the greater the chances of your investments ultimately falling through. Keep your original investment goals in perspective and ensure that your biggest investment-related decisions align with them.
How to Safeguard Your Investments and Attain Financial Freedom
No investment journey is without challenges, but discipline and foresight will definitely shield you from the biggest and most damaging blows. To gain even more mastery over your investments, consider brushing up on your knowledge as regularly as you can and reading investing advice from experts. It’s also a good idea to read up on specific topics, like technologies you can use to track your investments and how to invest in times of crisis.
When it comes to protecting your investments, the best approach you can take is to be proactive. Decide on your investment objectives, learn about the risks associated with particular types of investments, and make plans for your weightiest financial decisions. This approach will ultimately make you a better all-around investor and keep you on track toward your attainment of financial freedom.