What are the 5 Important Aspects to be
Considered While Investment Decisions are Taken?
Taking investment decisions which help you in accomplishing your financial goals can be a rather complex task. You can relieve some of the pressure by appointing a financial adviser to take up the responsibility. A financial adviser can also help you better understand how different investment products function and which are suitable ones for your financial profile.
As such, in the following sections we will look at some of the important aspects which are to be considered while investment decisions are taken.
Aspects to be Considered While Investment Decisions are Taken
Select the Right Financial Products
If you are not fully conversant with the business you want to invest in then it is better to avoid making such investment. The risk here is that you will not be able to properly understand all the intricate details of how the business functions and whether your investment will achieve success or not. In such situation, errors are more likely to occur and negatively effect the investment goals you want to achieve. As such you need to consult a financial adviser, discuss your objectives and select the right financial products.
When the investment period is longer your money gets the time to grow and compound. Thus, starting early and having a long term strategy can help you get high returns and accomplish your financial goals. Let us look at an example of how this works. Suppose, a person starts contributing $1,000 into a retirement account from the age of 20. In case annual returns are at 7% then the person will normally have about $168,515 in the account when he is 65 years old. On the other hand, someone starting at the age of 30 will have only $147,914 where retirement age and rate of annual returns remains same as for the other person.
Put Focus on Cash Flow Management
Proper cash flow management is the key to right investment planning and portfolio management. The main aim of such cash flow management should be to allocate a fixed amount to be automatically invested while you are still working. You need to discuss various aspects of financial planning with your financial adviser and develop a cash flow plan which can help you in accomplishing your investment goals. Such plan should also consider changes during different phases of life and as such keep provision so that necessary adjustments can be made to accommodate such changes.
Analyze Discretionary Spending
You need to develop clear understanding about the difference between needs and wants. There are many services which we consider as necessities (such as cable TV packages or other automatic services) but may not actually fall within the category of needs. Thus, you need to properly analyze whether you actually need those things or better use the funds for investment purpose.
Segregate Cash Reserves and Investments
If you suddenly require money then it will become necessary to sell investments for a loss. Thus, your financial adviser should allocate funds in short term bonds and money market account so that required liquid funds are available when you require them without the need to sell the investments.
A Final Note
We will conclude here by saying that by taking right steps you can make better investment decisions and move closer to achieving your financial objectives.