Stocks, bonds, cash. You’ve likely heard the lingo, but do you really know how different types of investments work and whether they’re aligned with your investment strategy?
You may be tempted – or confused – by the myriads of investment options on the market today but are you really adopting most effective and low-cost investment strategy to meet your needs? You don’t need to be financial wizard to generate significant returns. Instead of drowning in pools of financial jargon, keep your investments simple and focused, and your head far above water.
Why understanding is important
Research shows that women are generally more goal-oriented investors which means that our investment decisions are guided by a bigger plan. That’s why it’s important to understand how your investments feed into your overriding strategy.
Where are you actually putting your money? How do your investments work? Are you achieving your desired returns? Without such an understanding, you lack control over your own financial future. By knowing how your investment vehicles work, you’ll also be better equipped to monitor how they’re performing whether they’re helping you realise your goals.
Simplify your strategy
First familiarise yourself with the basics. While cash in a bank account, or a money market fund offers reliable, short-term returns, the interest such vehicles yield is on the lower end of the scale. Also, relatively low risk are bonds, where you lend money to a government or company at a predetermined interest rate that you earn for a set amount of time, meaning you earn a steady source of income.
Conversely, owning stocks or shares in volatile markets, cryptocurrencies or alternatives investments including venture capital potentially come with high returns but are also high risk – meaning you may lose your money if you’re not willing to ride the inevitable waves. It requires a long-term commitment to see real results.
Most people need some funds they can immediately access and others they can afford to leave to generate significant income. That’s why any sound investment portfolio needs to have a mix of such investments – known as diversification. This doesn’t necessitate countless investments – picking a handful of different types of vehicles that are aligned with your investment goals can help to streamline your portfolio and lower your required output.
Before investing, determine how much you have available to put away, how long it will be before you need to access the money and how much risk you’re willing to take on over that period. By understanding what you’re investing in and the commitment it requires, you’ll be empowered to make the best decisions to gain your desired returns. As always, we’re here to help you navigate any uncertainty.
