How to choose your best options
Perhaps the most important thing to keep in mind when investing money is your level of risk. Experienced investors know that investing is not about lottery-sized payouts, but healthy, steady returns. Here are some tips to help you invest your money wisely:
When planning your investment strategy, one of the first things you should do is determine your risk tolerance. You should keep in mind such things as your current financial health and the long-term goals of your investment. If your finances are fairly good, you can get away with higher-risk investments. Stick to low-risk investments if a loss stands as a significant hit to your wallet.
Diversity is the first golden rule of investing. A portfolio with different kinds of investments will generate higher returns and be much less risky than any individual investment within the portfolio.
Categorizing your investments
You should categorize your investments smartly while maintaining diversity. For example, do not simply invest in a diverse group of Canadian gold companies. If something bad happens to the gold market, all stocks involved will be affected. Make sure to spread your investments out into different categories, such as growth, value, income, foreign, market cap, sector and index stocks.
You should also determine the time horizon of your investments - the length of time for which an investment is held before liquidation. Choosing the right time horizon depends on your individual needs. For example, if you are saving up for a big purchase in one year, your time horizon will be short. As a general rule, short investments should be low risk, because there is not a lot of time to make up any losses. By contrast, you can be more aggressive with your long-term investments.
Generally speaking, if you have invested smartly and your portfolio is healthy and diversified, you should not experience any significant problems. But often, whether due to market conditions or simply if you think a change is needed, it is a good idea to reallocate your investments to optimize your returns. Regardless, you should periodically review your portfolio to ensure your investments are performing optimally.