Investing can be a rewarding proposition when done well. Beyond making more money, it is satisfying to simply make good decisions. Indeed, enjoying the benefits of research through informed decision-making is immensely rewarding and can be a motivating factor for further growth in investments. In a tough economic climate, this process is invaluable and can be the difference between making the most of opportunities or falling victim to risky investments.
Understanding the basics of investing is important. As Massimo Acquaviva – 2R Capital Investment Management Limited co-founder and co-CEO – knows, taking the time to learn helps investors to prepare and potentially reduce their level of risk. While it can seem overwhelming considering the range of options available, taking an informed approach to investing is effective in building long-term wealth.
Key aspects to consider include:
The Value of an Investment Strategy
It helps to have an investment plan – or come up with one – that puts into perspective the investor’s goals and their approach to achieving them. Having a strategy also helps to avoid one of the common pitfalls of investing: (re)acting out of emotion rather than logic or reason. There’s no denying that investing can get emotional, but removing this aspect makes it easier to make better decisions. As such, when tempted to change tact because of a news alert or update, a plan can guide the decision-making process.
Undertaking a Risk Assessment
All investments have a degree of risk. With some asset classes, the risk of losing the principal amount is much higher than with others. However, taking on risk (in an informed manner) can have its rewards, mainly in the form of the potential for greater returns. For those investing long-term, the chances of making more returns lie in investing in assets that have relatively higher risk, such as bonds or stocks. With short-term investments, less risky options such as cash equivalents may offer better value.
Still, it is advisable to be cautious of investments that promise high returns, especially when lacking understanding about what they entail. For such scenarios, it’s important to consider the level of risk the investor is comfortable with. The rule of thumb is the higher the potential return, the higher the level of risk involved.
Where to Invest
There are two main ways investors can choose to invest their money: across a variety of asset classes (bonds and stocks) or in a single asset class (real estate). The former option is a diversified approach that means the risks are distributed across the investments. With the latter single option, all risks are concentrated in one investment.
To learn more about important investment strategies and considerations, visit the website of Wall Street investment strategist, author and professor Michael J. Mauboussin: https://www.michaelmauboussin.com/