Learn to invest in 10 steps

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Learn to invest in 10 steps

  1. 1. Entrepreneurship Ref: 0001Learn To Invest In 10 StepsLearn To Invest In 10 StepsInvesting is actually pretty simple; youre basically putting your money to work for you so that you dont have to takea second job, or work overtime hours to increase your earning potential. There are many different ways to make aninvestment, such as stocks, bonds, mutual funds or real estate, and they dont always require a large sum ofmoney to start.Step 1: Get Your Finances In OrderJumping into investing without first examining your finances is like jumping into the deep end of the pool withoutknowing how to swim. On top of the cost of living, payments to outstanding credit card balances and loans can eatinto the amount of money left to invest. Luckily, investing doesnt require a significant sum to start. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  2. 2. Step 2: Learn The BasicsYou dont need to be a financial expert to invest, but you do need to learn some basic terminology so that you arebetter equipped to make informed decisions. Learn the differences between stocks, bonds, mutual funds andcertificates of deposit (CDs). You should also learn financial theories such as portfolio optimization, diversificationand market efficiency. Reading books written by successful investors such as Warren Buffett or reading throughthe basic tutorials on Investopedia are great starting points.Step 3: Set GoalsOnce you have established your investing budget and have learned the basics, its time to set your investing goal.Even though all investors are trying to make money, each one comes from a diverse background and has differentneeds. Safety of capital, income and capital appreciation are some factors to consider; what is best for you willdepend on your age, position in life and personal circumstances. A 35-year-old business executive and a 75-year-old widow will have very different needs. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  3. 3. Step 4: Determine Your Risk ToleranceWould a significant drop in your overall investment value make you weak in the knees? Before deciding on whichinvestments are right for you, you need to know how much risk you are willing to assume. Do you love fast carsand the thrill of a risk, or do you prefer reading in your hammock while enjoying the safety of your backyard? Yourrisk tolerance will vary according to your age, income requirements and financial goals.Step 5: Find Your Investing StyleNow that you know your risk tolerance and goals, what is your investing style? Many first-time investors will findthat their goals and risk tolerance will often not match up. For example, if you love fast cars but are looking forsafety of capital, youre better off taking a more conservative approach to investing. Conservative investors willgenerally invest 70-75% of their money in low-risk, fixed-income securities such as Treasury bills, with 15-20%dedicated to blue chip equities. On the other hand, very aggressive investors will generally invest 80-100% of theirmoney in equities. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  4. 4. Step 6: Learn The CostsIt is equally important to learn the costs of investing, as certain costs can cut into your investment returns. As awhole, passive investing strategies tend to have lower fees than active investing strategies such as trading stocks.Stock brokers charge commissions. For investors starting out with a smaller investment, a discount broker isprobably a better choice because they charge a reduced commission. On the other hand, if you are purchasingmutual funds, keep in mind that funds charge various management fees, which is the cost of operating the fund,and some funds charge load fees.Step 7: Find A Broker Or AdvisorThe type of advisor that is right for you depends on the amount of time you are willing to spend on yourinvestments and your risk tolerance. Choosing a financial advisor is a big decision. Factors to consider include theirreputation and performance, what designations they hold, how much they plan on communicating with you andwhat additional services they can offer. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  5. 5. Step 8: Choose InvestmentsNow comes the fun part: choosing the investments that will become a part of your investment portfolio. If you havea conservative investment style, your portfolio should consist mainly of low-risk, income-producing securities suchas federal bonds and money market funds. Key concepts here are asset allocation and diversification. In assetallocation, you are balancing risk and reward by dividing your money between the three asset classes: equities,fixed-income and cash. By diversifying among different asset classes, you avoid the issues associated with puttingall of your eggs in one basket.Step 9: Keep Emotions At BayDont let fear or greed limit your returns or inflate your losses. Expect short-term fluctuations in your overall portfoliovalue. As a long-term investor, these short-term movements should not cause panic. Greed can lead an investor tohold on to a position too long in the hope of an even higher price – even if it falls. Fear can cause an investor to sellan investment too early, or prevent an investor from selling a loser. If your portfolio is keeping you awake at night, itmight be best to reconsider your risk tolerance and adopt a more conservative approach. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009
  6. 6. Step 10: Review and AdjustThe final step in your investing journey is reviewing your portfolio. Once youve established an asset-allocationstrategy, you may find that your asset weightings have changed over the course of the year. Why? The marketvalue of the various securities within your portfolio has changed. This can be modified easily through rebalancing. For further information on this article and the coaching programs available please contact: Image Group International Asia Pacific Head Office Tel: (+61 3) 9820 4449 E: info@imagegroup.com.au W: www.imagegroup.com.au ©2009

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