While everyone knows about the saying that money makes money, a lot of people tend to overlook just how much active effort this process requires. Of course, we are not talking about the day-job level of effort, but still, to be able to make your assets grow, you need to keep making the right investment decisions over the course of time. With this in mind, here are four tips that could come in handy in the following year.
Set Up An Emergency Fund
One of the smartest things to do with your money is starting an emergency fund. First of all, this gives you much more freedom with your overall household cash flow, seeing as how you don’t have to worry about emergencies. Furthermore, it even gives you more maneuvering space for your investments since you will always have something to fall back on in a situation where you lose a bit more than you expected. On the other hand, if your investment turns out to be more lucrative than you expected, you might regret not investing this money as well. Damned if you do, damned if you don’t.
Develop An Investment Strategy
For those who decide to try their hand at investing in the stock market, developing an investment strategy is a vital component in getting some consistency. Randomly trading in stocks based on your ‘gut-feeling’ is closer to gambling than it is to trading, let alone smart investing, which is why you need to pick a strategy and stick to it for at least a year. Two things your strategy needs the most are theme and objectives and you need to construct your entire investment process around these two elements.
Set Your Stop-Loss And Stop-Gain Order
Another thing you need to keep in mind is that any kind of investment is a tricky thing, due to the fact that the stock market is a volatile place. Unfortunately, not a lot of people can see the movements on the market as simple mathematics, since they get the thrill when they’re winning and become desperate for a comeback when they start losing money.
In order to avoid this phenomenon becoming a serious problem, you need to set your stop-loss and stop-win order. According to numerous sources, your stop-loss is the most effective when it is at about 1 percent of all your assets, while your stop-gain shouldn’t go above 7 or even 6 percent.
Precious Metals Protect From Inflation
Finally, you need to bear in mind that having a large quantity of money just sitting in your savings account isn’t the best option. Namely, the inflation rate in the world is on a steady rise and $10 in 1997 today equals $15.22. In other words, while the quantity of money in the account doesn’t change, its value is constantly dropping. One of the best ways to fight inflation is to invest in precious metals too. By buying a gold bullion, you stand a much better chance of preserving the true value of your assets in years to come and even see it grow substantially.
Think About Your Pension
If you have some spare cash at the end of the month, instead of putting it in a savings account that’s earning minimal interest, or spending it on “stuff” think about paying into a pensions scheme. Your workplace will offer you a scheme (it’s a legal requirement in the UK at least) but if you’re self-employed or not sure how long you’ll stay with your current employers then you should look into a private scheme to help you save for the future.
At the very end, you need to understand that investing is not for everyone and that saving is a great alternative to it. Furthermore, you need to accept that in order for your investments to pay off, you need to be patient. In fact, in some industries, it may take as much as 5 years for your short-term investments to pay off. So, if you make an estimate that you can’t separate from your assets for this period of time, it might be a much better idea to either put this money into a savings account or invest in precious metals. In either way, the single worst thing you can do with your money is let it sit idly.
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