Investing is a great way to make your money work for you. Through various investment vehicles such as stocks, bonds, mutual funds, futures, precious metals, and real estate, you generate an additional revenue stream for the future. A good investor should have a solid grasp of their risk tolerance, financial goals, and investment horizon to build long-term wealth.
While there is no foolproof strategy to ensure that you get the best returns on your investments, there are some factors you should remember to make a well-informed decision.
#1 Know where you stand
Before you invest, you need to know where you stand so that you can chart out the way to achieve your goals. Start by considering the following questions:
Your earnings and spending: If you’re not tracking your spending despite earning a good income, you’ll never be in control of your money.
What do you own? What you own are your assets like your house and car. Assets also include the cash you have in your savings and retirement accounts.
What do you owe? Your liabilities include your debts, including a mortgage, student loans, personal loans, and auto loans.
What have you saved? This could be an emergency fund.
How are you protected? Have you purchased any insurance to minimize the financial loss from death or illness?
#2 Your personal financial roadmap
Before making any investment decision, you need to have a plan. Building a personal financial roadmap involves considering where you are right now and building a clear picture of where you want to be. If you know when you want to achieve a financial goal, a roadmap will probably take you there. Given that everyone has different goals, you shouldn’t worry about where your neighbors or friends spend their money. Once you have started following your plan, it is important to review it frequently and make adjustments.
#3 Consider your risk tolerance
Risk tolerance is all about your ability and willingness to handle the loss while making an investment decision. Knowing the risk tolerance level can help an investor choose suitable investments that match their risk profile. You can gauge your risk tolerance by using a questionnaire, which gives more information about your investing style – aggressive, moderate, or conservative. For instance, investors with an aggressive risk tolerance focus more on stocks, while conservative investors focus more on other fixed-income investments and bonds.
#4 Know where to invest your money
There are plenty of investing options, depending on your risk tolerance. Remember that the more risky an investment is, the higher the return. Therefore, it is always a good idea to invest in a variety of different asset classes. Some basic asset classes for investors include cash, bonds, real estate, stocks, futures, and other derivatives, and commodities. A mix of asset classes will offer a diverse portfolio that can easily handle the ups and downs of the market. A good example of a diversified portfolio is holding individual stocks across several sectors and owning and renting out a few real estate properties.
#5 Speak to a financial advisor
While you may prefer to do all the financial planning independently, sometimes it makes sense to consult a financial advisor.
You have spent some time in your job and now want to plan your financial future — After starting work, we may have so many goals competing for our limited financial resources: getting married, funding a retirement account, saving for an emergency fund, and buying a house. A financial planner will help you make better financial decisions.
When you get married or divorced — Whenever you enter or leave a marriage, it is time to consider your financial goals. By taking the advice of a financial planner, the newly married couple can talk about combining assets and incomes.
About Hoshi CPA, LLC
Hoshi CPA, LLC offers expert tax planning services to business owners, executives, and independent professionals in Tigard, Oregon. Udai Hoshi assists individuals, Japanese-speaking communities, and U.S. business owners with tax planning, tax compliance, tax resolution, and CFO professional services.
Being the best IRS tax resolution company, we provide reliable accounting and tax services in Tigard, Oregon. You can call us at (503) 388-6580 or drop an email at staff@hoshicpa.com to know more.
