With so much uncertainty at the moment, those with investments are understandably worried about how they can best protect their investments, and it’s important take a variety of different factors into consideration. These can be the interest rates being charged, the term to maturity of the investment, the risks involved in making the investment, the attendant costs, the industry in which you’re investing in and the potential returns. You also must think of the worst case scenario so that should you make an ill investment you’re covered financially and at the very least, know what to expect.
Making these decisions involves speculation, as most investments can take years to mature and the future is uncertain. Things like political, social or economic changes can affect investments tremendously, in a way that cannot be planned. Interest rates may change and the value of money may also change for better or for worse. Even if you have a fixed-interest investment, you stand to lose out on potential gains if the market interest rates fall in the future. There is no telling what the future holds for us and our investments. It’s therefore important to know how you can make yours grow even in the face all these uncertainties. The best way to do this is by diversifying your investment portfolio. Before you even begin investing, it is important to understand all there is to know about business—the business cycle, taxation, legal issues affecting businesses and anything else there is to know.
Importance of Diversification
You can have diversity in your portfolio by combining long-term and short-term investments, fixed and varying-interest investments, derivatives, stocks, treasuries, indices, bonds and other financial instruments with different characteristics. By diversifying, you will have different types of investments which are affected differently by changes in the economy. This can enable your losses to cancel out with your profits and in a worst case scenario you will neither gain nor lose, or if you do lose it will stand to be a very small loss. If you don’t diversify, all your investments will be affected in the same way by various changes in the economy. For instance, if interest rates rise and all your investments are fixed-interest, you will lose out on a lot of potential gains. If you had mixed them up, you would make some huge gains on some of your investments.
Having both short-term and long-term investments is also a good diversification strategy. Under short-term investments, online trading is one ways of growing your money. There are a number of online platforms that are easy to use and offer free trials, such as online broker CMC Markets, so it’s worth trying your hand at it before deciding whether this is a suitable short-term investment style for you. If you’re a beginner they’re able to provide you with educative material that can help you increase you knowledge on online trading. If you decide to invest in stocks and bonds, be sure to invest in companies operating in different industries. This way, if one industry performs poorly and the value of their shares diminishes, your losses can be offset by the good performance of the companies operating in other industries. But if you only invest in the shares of companies operating in one industry and the industry performs poorly then you will make huge losses, with nothing to offset them.
It’s impossible to guarantee investment certainty – all you can do is try your best, and invest wisely. One of the most important things you can do is to spot and understand market trends and learn how to use these to make predictions about the future. Your predictions may not be accurate but they will give you a rough idea of what you’re able to expect in future. By keeping an eye on the future, you will know when to pull out of a potentially bad investment and avoid losses. You should look at both historical and current data to see how the market has been moving and extrapolate these findings to make predictions. Some of the things you can analyse are the stock market performance and the gross domestic product. These will give you information about the past and the present as well. Should you still be uncertain, consider enlisting the services of a financial expert to help you with your investment decisions.