Investing money in any market is a risk, pure and simple. To ensure your money is as safe as possible, you need to put in the legwork first. It can take a while to clear the decks and prepare properly, but in doing so you will reduce your risk and increase your chances of success. And here’s how you do it.
Clear Your Debts
It will take a stroke of incredible good fortune for your return to outweigh the amount you are paying back in interest. Let’s say you owe £5000 to a bank and are paying 15% interest on the loan. Given that a typical cash return can be anything between minus 5% and plus 8% per year, you are almost guaranteed to lose money by not tackling your debts first. Of course, there are good debts and bad debts, and sorting out which is which should be the first step in your plan.
Work Out Your Budget
Paying off your debts will also give you more money to play with. However, it is important to work out a budget and stick to it. Investing in anything should only ever be done with money you can afford to lose. You should be comfortable with that risk and not put your finances in jeopardy if you cannot afford to. Making a financial road map could help – you could do one on your own or enlist the help of a financial planner.
Consider Your Mix
Never keep all your eggs in one basket. Investing is a volatile game, and you will reduce your risk of ruin only by choosing a good mix of assets in your portfolio. All successful investors have a wide range of categories that they invest in so that if one market fails, the fallout is supported by the rest. Choose markets that you are comfortable with to get started, and as you pick up more experience you can start investigating other areas.
Check The Markets
Although the stock market tables are a strange whirlwind of figures to the uninitiated, it is important to learn how to use them. The earlier you do this, the better you will be able to perform background research on different markets and companies. However, different markets require different research. If you are investing in buy to let property in London, for example, you could use a service like London2let to see the kind of rental prices you can expect. Alternatively, if you are looking to invest in government bonds, you will need to look into the country’s financial stability. You should then weigh this up against the potential returns, and decide if the risk is worth it.
Investing well takes time and energy, but most of that time should be spent before you invest a single dime. If you get the preparation stage right, then you will reduce your risk of losing out financially. You will also be in a better place to identify safe and rewarding markets. Check out the rest of our blog for some more great investment tips.