Investing is simply the process of giving out value for a greater reward or profit, it can also be defined as the process of releasing money into a business or an institution for profit, the development of human capital and also other empowerment purposes.
- Risk and return expectations can vary widely within the classes of the assets.
- The type of returns generated depends on the asset; many stocks pay quarterly dividends, while bonds pay interest every quarter and real estate provides rental income.
- Whether buying a security qualifies as investing or speculation depends on three factors the amount of risk taken, the holding period, and the source of returns.
Below are factors to consider before investing
Understanding your situation: First of all you must sit down and think very carefully about your financial situation. One of the main aspects that you have to consider is your risk tolerance from this standpoint, you are likely to need some help from a financial professional or may be a consultant. Another important factor is the investor’s age, as it would be unsuitable for an investor reaching retirement age to invest in high-risk products.
Diversification: It is essential that keen investors diversify their portfolio: investing in a unique sector is riskier than investing across different asset categories.
Periodical portfolio Adjustment: If you readjust your portfolio occasionally, you will ensure that it doesn’t overemphasise on one or more asset classes. The reason for this is because when market conditions cause one asset category to do well, it frequently produces another asset class to have average or low income.
Timing: We can’t be talking investment and not mention time, as the importance cannot be overemphasized, You must take into account the time you have before turning your investment into cash. If you need to increase capital in the short-term, you should invest in more liquid assets. Nevertheless, if you don’t need to see a return for your money soon, it would be an excellent idea to invest in bonds, properties or other commercial opportunities.
Available professionals: It’s always cool you seek advice from a professional that isn’t affiliated to whatever institution or asset you’re investing in because most times they encourage you to invest not because the asset is a good one but because of the commissions they get from your investment this is very common among Insurance and mutual funds salesmen.
Available Data: It’s best to do your research or get data from trusted sources so that you’re not investing with limited information as this will help bring rest of mind and confidence.
Watch Investments that promise quick high returns: This is one of the most common ways if not the most common way people get scammed, it’s majorly because of their greed once you notice the investment is appealing to the greed in you please guard yourself from it; an example of such is an investment product that promises you 50% returns in hours.
Risk Tolerance: No one knows you better than you know yourself whether this is true or not, it’s always advisable to put your risk tolerance into consideration before going for an investment product.
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