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Prepare a financial plan
Before you start investing, it’s important to first determine your goals. Different goals will have different strategies. Consider whether you’re investing for the long term or the short term. See how much you can invest. It’s a good idea to review the plan regularly with a licensed financial adviser or broker.
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Diversify your portfolio
Most financial planners will suggest a balanced portfolio of investments. This means that you evenly spread your money across shares, bonds, cash and property. You can mitigate risk by combining riskier assets, which offer the possibility of a higher return (such as shares), with lower risk and lower return assets (such as cash or bonds).
If your risk appetite is low, consider plans that offer capital security.
Remember that some assets will perform better than others – don’t expect everything to go up. Some elements may fall while others prosper. Don’t worry. Keep your focus on the total return over the long term.
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It’s not about timing the market, but the time in the market
Most newcomers to investment (especially in equities) tend to worry about the right time to start investing. There’s no such thing as the right time. Invest whenever you have the money. The sooner you start investing, the longer the investment period you can afford.
To get the best returns, the minimum period you should look at should be 5 years.
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Over the long term, cash is unlikely to deliver returns to outpace inflation
Many newcomers feel that cash is a safe option to invest in. This, however, gives lower returns in the long-term. It is therefore not recommended that you put invest all your money in cash alone. Instead, estimate how much you think you’ll need (your personal liquidity requirements) and invest only that amount in liquid investments, spreading out the rest in other asset classes.
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Invest systematically over a long term
If your aim is to accumulate wealth in the long run, then you need to disregard short-term fluctuations. Investing small amounts over the long term helps you avoid timing the market. (Also see: What is the benefit of a SIP?)
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Ensure your investment partner has a proven record
The returns you get on your investments depend on the decision-maker. If you’re investing in mutual funds, then your returns will be decided the Fund Manager and the firm to which you entrust your investment capital. Make sure you invest with a firm that has a proven record for delivering high returns. Before investing, ask for performance records.
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There isn’t a common solution
When investing for the first time, some investors copy what others are doing. Keep in mind that your investment goals are your own. Talk to your financial planner and set your own investment goals. Then pick the right strategy to fulfill them.