Today, the range of investment opportunities is wide. From deposit accounts to derivatives, each type has its risks. Here is how to invest safely.
How to Invest Money Safely
Investment is part and parcel of any prudent financial strategy. Consumers who care about the future ensure their money works. Like saving, investing can be done in many ways. What are the pillars of a consistent strategy? Here are seven essential tips for South Africa’s safe investment.
1. Define Your Target
Begin by analyzing your needs and end goals. What do you expect from your investment efforts? Any viable plan is always based on clearly defined objectives. Investment and saving are both important, but only the former can bring a return.
How much can you afford to invest at the moment? It is recommended everyone has an emergency fund big enough to cover a few months of expenses. The first priority should be the basic financial cushion.
2. Know Your Opportunities
Research the market to see which styles of investment are available. Modern strategies include digital tools that were non-existent a few decades ago. It is possible to trade currency pairs or virtual derivatives like CFDs. A diversified portfolio of such assets has a lower overall risk.
Local brokers like FXTM provide a wealth of resources for Forex education that include neat video tutorials. Today, online trading is used by 15+ million people across the world. If you master it, you will be making a profit from the comfort of your home.
3. Consider the Length
All opportunities can be split into short-term, medium-term, and long-term. The choice must depend on your personal goals and financial situation. Be sure about how soon you want to get your money back. Some forms of investment do not allow you to withdraw until the term expires. Are you sure you will not need it urgently?
The goal, the time frame, and the level of risk should all be appropriate. Imagine you are planning to make down payment for a house in a year. If you invest in shares, the market may move against you. Returns cannot be guaranteed. What if short-term changes bring a loss in 11 months from now?
For more immediate goals, the safest methods are most preferable, especially for the risk-averse. A cash savings account will not bring impressive interest, but it can beat inflation. This is better than letting your money sit in a jar.
On the other hand, for long-term scenarios, investment in stocks is reasonable. If your goal is to save up for retirement in 20 years from now, short-term fluctuations have little meaning. You will be looking at the bigger picture.
3. Make a Plan
Once the goals are crystal clear, develop a thoughtful course of action. You could decide to start with modest risk and slowly increase the stakes. It is recommended you consult a finance expert before signing any agreements.
A proven way to hedge risk is through diversification. You could develop a portfolio with several investment products. This way, if one of the assets underperforms, it will be compensated by better returns elsewhere. For instance, a trader may spread their risks across currency pairs, CFDs, and binary options at the same time. Balanced portfolios boost profit potential but require experience.
4. How Much Control do You Want?
Are you planning to pursue a hands-on approach? If you have sufficient knowledge and financial management brings satisfaction, you can buy individual shares. This requires full awareness of potential risks.
If you want decisions to be made for you, consider mutual funds. In such arrangements, your money is pooled with contributions from other members. The resources may be used for diverse purposes.
Forex traders who lack time or experience take advantage of copy trading. The scheme is based on delegation, with a strategy manager responsible for decision-making. The client will only pay a fee if online trading brings profit.
6. Check the Costs
Make sure all fees for the chosen methods are clear. For example, the direct purchase of individual shares involves dealing with costs. Investment fund managers also charge for their services. In any case, request detailed information on all payments involved.
7. Investments to Avoid
In general, rookies should always start with the least risky investments. Steer clear of products you do not understand. Raise the degree of risk gradually as you gain experience and knowledge. Of course, dubious services that promise unrealistic returns should be avoided altogether.
Whatever method you opt for, check the status of your intermediary. Is the company licensed to operate in your region? Is it subject to control by reputable state authorities? Check customer reviews online.
Playing It Safe
Overall, avoid rash decisions and stick to methods you can understand. If you are only setting off your investment journey, seek professional advice. Spread your risks across several instruments, and review the strategy periodically to keep track of progress and make adjustments accordingly.