I am bringing together much of what I have written about deciding to invest in past columns for the benefit of the many prospective and new investors who ask about how to invest.
It is important to recognise that investing is dynamic because the needs of investors change, as do the markets and the environment in which they operate.
Investment decisions form part of a slew of other decisions, many of which are not financial. But these decisions do affect each other. Factors that affect investment decisions include personal and family circumstances, finances and goals, values, experience, knowledge, the capacity to handle the risks and uncertainties inherent to investing, and the state of the markets and the economy.
The usefulness of a decision depends on the circumstances in which it is made. A wise decision for one person may be a bad decision for another.
A good decision for an individual at one time may be a bad decision at another time, but investors love to get the best returns generally. Many are fixated on a high return – in a short time at that – but the rate of return is not all. Further, there is no rule of thumb that applies to all people for people have different circumstances and different priorities.
An important place to start is investing in self by doing courses, attending seminars, reading financial and general material, listening to and watching the wide range of economic and financial programmes offered by the media, engaging in discussion with those who are well-informed, and investing in the areas in which personal interest is high. Being familiar with an area of investment before taking the plunge makes for a more comfortable entry.
Investing in self is empowering and facilitates independent decision-making, but being able to make independent decisions does not remove the need to consult investment advisers. The capacity to do so makes it easier to relate to the adviser.
Successful investing rests on creating a portfolio with many elements, which gives it balance, but there are relationships that must be recognised. Generally, high returns come with high risk, and safe investments – those with more certain returns – give low returns and lose value in real terms over time.
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