Investing | Real Estate Investment

Once you've decided that you can afford to start investing, tucking away your hard earned money to hopefully grow in size, you'll need to ask yourself three questions first.

Investing is an activity that can be done for the short or long term and has variable amounts of risk associated to it. You need to understand what those risks are and decide how you yourself feel about them. this in turn will help guide you to the type of investing you should be doing - not necessarily the type you WANT to be doing. (After all, Gordon Gecko was just a fictional character - wasn't he?)

So question 1 - How long do you want to invest this money for?

Now I know that seems a simple enough question - but the answer is important because it determines the level of return you can expect on your investment, as well as partly determining the amount of risk you can take. Don't forget one of the golden rules of investing! You see it quoted on all the adverts but it is important - The Value of your investment can go DOWN as well as up.

If you are deciding to invest for a long period of time with money that you can afford to put away and leave - then the stock market is ideal. Although it has highs and lows - the same as any other business - it tends to even itself out over a sustained period of time and generate a healthy profit to boot.

But if you are only able to invest for, say 3 or 5 years and you put your money into the stock market - what happens if the market dives just before you planned to sell your shares and take the money? Markets DO go down and it is much more common for you to have that happen to you just at the wrong moment. After 20, 25 or 30 years it isn't normally such an issue as your holdings have grown over a long period of time. But in a short period of investing, it's unlikely you'll have much of a profit to play with.

If you're able to invest long term - go stock market way. If it's short, consider money market accounts or even bonds - the most secure but not normally as profitable.

Which leads us perfectly into

Question 2 - How much do you want to make?

A simple reckoner for this question is think of it as a percentage. "If I invest $10,000 for 10 years, I want to see a return of 15%!" Now that's $1,500, giving you a total sum of $11,500. Not a huge earth shaker - but the amount you want to gain, the percentage of return you expect is directly proportional to the amount of 'risk' you need to take. (Note I put risk in ' ' marks then? No investment is ever 100%, cast iron safe!! Oh, did I mention that already? Sorry!)

We all dream of being the one to buy a penny stock and find that within a year it's become the next Microsoft or Google! But it rarely happens. Yes, I know it can happen - but rarely. Look, if you're going to invest your very hard earned money, make sure you have your ordinary glasses on when looking to the future - not the rose tinted ones, okay?

If you aren't happy to play a risk - go Bonds or money market accounts.

If you can afford to 'gamble' a little bit then the stock market can work for you.

Once again, almost spookily, that leads us to the next question which is

Question 3 - How high a risk will you consider acceptable?

Now you aren't expected to be Gordon, sneering at the loss of a paltry $30 Million for the week when you have just gained $60 million. But nor should you be checking your investments, your share values every single day and panicking, questioning your own decisions every single day either.

Think of investing as a long distance journey and it's returns being the final destination. At what point on the road are you starting the trip from? Are you close t the start, i.e. fairly young, no real commitments or obligations? Then you can afford to gamble more, much more than someone who is approaching retirement age and counting on their investments and profit to secure their years when not earning a regular income.

So what if you're joining the trip right at the middle you say? Easy - do what I did, split your total sum available for investing roughly down the middle and invest half in low risk, low return areas and half in higher risk, higher potential return areas.

I'm still smiling anyway.

Important note:- Investing your money is a serious business as your future happiness could well depend on it. Although the information contained here is good (naturally) it is not nor should be considered professional advice. In other words if you sell your house and stick all your money into high risk funds and loose the lot, don't come blaming me, okay? Instead, seek the advice of professional, trade approved advisors who will be able to show and guide you more than one or two articles on the internet can!

Duncan Roberts is not quite stinking rich yet - but he's slowly getting very comfortable. If you'd like to read more of his investing advice and ramblings, check out his site at Investing Advice