What type of investor are you? Are you a risk taker, or are you conservative? Investing in profitable business ventures is no easy task and you need to obtain the right advice. SME Brokers do a thorough due diligence on all issuers seeking bank and crowd source funding to ensure your investment is safe. We are connected with experienced investment attorneys, accountants and financial planners whose role it is to protect your investment. If you want access to profitable investment opportunities, please click here.
Investing is the act of committing money or capital to an endeavour with the expectation of obtaining an additional income or profit. Investing is a tool for building wealth, but it is not only for the wealthy. Anyone can get started on an investing program, and various vehicles make it easy to begin with small amounts and add to a portfolio periodically. In fact, what differentiates investing from gambling is that it takes time—it is not a get-rich-quick scheme.
Investing is really about “working smarter and not harder.” Most of us work hard at our jobs, whether for a company or our own business. We often work long hours, which requires sacrifice and adds stress. Taking some of our hard-earned money and investing for our future needs is a way to make the most of what we earn.
Investing is also about making priorities for your money. Spending is easy and gives instant gratification—whether the splurge is on a new outfit, a vacation to some exotic spot or dinner in a fancy restaurant. All of these are wonderful and make life more enjoyable. But investing requires prioritizing our financial futures over our present desires.
Investing is a way to set aside money while you are busy with life and have that money work for you so that you can fully reap the rewards of your labour in the future. Investing is a means to a happier ending.
Legendary investor Warren Buffett defines investing as “… the process of laying out money now to receive more money in the future.” The goal of investing is to put your money to work in one or more types of investment vehicles in the hopes of growing your money over time.
It’s important to stress the idea that investing is not one size fits all. Different strategies work for different investors and different situations. Additionally, an investor might employ more than one strategy, or choose a variety of investment vehicles depending upon their goals.
What are your objectives for the money that you will be investing? Is safety of principal with some level of return sufficient? Are you trying to accumulate money for a longer-term goal such as a college education for your kids or perhaps a comfortable retirement for yourself? You might even have different investments for different goals. The point is that before you decide to invest any money it is important to understand why you are investing and the end result that you are seeking. Goals and objectives should not be created in a vacuum. You also need to know your risk tolerance and time horizon as part of the goal-setting process. No one investing strategy or approach fits all. Every investor has different reasons for investing, different goals, different time horizons and varying degrees of comfort with investing. It’s important to define and articulate your own parameters.
Risk can mean a lot of things, but in the context of investing it means the risk of losing money. In other words, the risk that the amount of money invested will decrease in value, possibly to zero.
All investing involves risk in one way or another. Stocks can and often do go down in value over certain periods of time—in 2008, the S&P 500 dropped by 37%. While this decline in the stock market was one of the worst in history, less severe market corrections are not uncommon.
How much of a drop in value for your investments can you stomach? Your risk tolerance will likely be in part a function of when you need the money—known as your time horizon—which is usually a function of age. Someone in their 20s or 30s who is saving for retirement shouldn’t give too much thought to fluctuations in the value—known as the volatility—of their investments.
In contrast, someone in their 60s likely will and should have a lower risk tolerance if for no other reason than they don’t have the time to fully recoup a major loss in the value of their investments.
Your investments should be aligned with the time horizon in which you will need the money, especially if some or all of your investments are targeted for a specific goal.
For example, if you are young parents investing for your newborn’s college education, your long time horizon allows you to take a bit more risk in the initial years. When your kid gets to high school, you might adjust the investment mix to help ensure that you don’t suffer any major losses in the years leading up to the start of college.
Some investment vehicles require sophisticated knowledge and monitoring, while others are more set-and-forget. Your investment decisions should be based on your comfort level and your willingness to devote time to researching your choices. Investors with more knowledge and experience might consider actively managed mutual funds, individual stocks, real estate or other alternative investments.
Beyond stocks, bonds and mutual funds there are many other ways to invest. Real estate investments can be made by buying a commercial or residential property directly. Hedge funds and private equity also fall into the category of alternative investments, although they are only open to those who meet the income and net worth requirements of being an accredited / sophisticated investor. Private equity allows companies to raise capital without going public. There are also private real estate funds that offer shares to investors in a pool of properties. Often alternatives have restrictions in terms of how often investors can have access to their money.
It is important that investors understand what they do and don’t know. They should never be talked into investing in something that they don’t understand or are uncomfortable with.
SME Brokers are part of an international group of business advisers currently servicing in excess of 60,000 Small to Medium size Enterprises globally.
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