The types of assets one can invest in include stocks, bonds, mutual funds, exchange-traded funds and Forex trading, among many others. Each performs a different function within your investment portfolio and should be selected with that in mind. Investors need to understand their risk profiles before undertaking any investment plan. Most importantly, you should set realistic expectations for the growth of your investments. There are going to be years when your invested capital doesn’t grow or even goes down in value. That’s just the nature of the beast. Most investments don’t go up in a straight line.
Investors need to remember that in addition to making a profit, they’re doing this to protect their savings from inflation. If you leave your funds in a bank account paying less than 1 percent interest annually and the rate of inflation is 3 percent, over a lengthy period your assets will erode significantly (and that’s without bringing taxes into the discussion). You need to put your money to work if you want to improve your financial situation.
When you invest, you’re allocating assets held in your portfolio according to your risk profile. Asset allocation is thought by many experts to be the most important part of the investment process, more so than the actual investments you buy. Many people confuse asset allocation with diversification, another very important part of investing. Without asset allocation you are increasing the overall risk of your portfolio.
Investing is not an easy subject to learn but the rewards for taking the time to do so are worth it. Most people don’t realize that the investment decisions they make today can affect the quality of retirement they’ll enjoy in the future. Simply understanding your investments makes the retirement savings process that much easier. You don’t need to be perfect. Rather, the key to successful investing is staying involved in the process.
Financial literacy can be the difference between having enough money or not. It’s your choice.
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