Make Your Money Work For You - Invest

Make Your Money Work for You - Invest

Let’s be honest. For many of you, the thought of investing can be daunting, especially if you don’t have a clue how to do so, don’t know where to start, or if you are afraid that you’ll lose your money.

However, like saving, investing should play an important part of your financial plan. Whether planning for retirement or paying for a major purchase (e.g. a home), investments can help you get one step closer to your financial goals.

Why invest?

People want their money to work for them. As a result, they use some of the income they earn today to invest in vehicles that will help produce more money tomorrow. Investing simply means putting your money to work so it can make more money.

Although investing is risky, people invest because they are likely to earn more money investing than keeping all their money in a savings account. The potential average annual return percentage on investments is usually greater than interest earned on savings accounts.

Many people also invest to maintain purchasing power over a given period of time. Due to inflation, every dollar is losing purchasing power and buys a smaller percentage of a good or service. The five dollars that is able to buy a product today will not be able to buy that same product in 5-10 years.

Investment options

There are many different ways you can go about investing. This includes putting money in stocks, bonds, mutual funds and real estate, just to name a few. Each vehicle has its own pros and cons. Where stocks offer you the potential for growth, they can be unstable. Bonds, on the other hand, generally provide income and lower instability, but also lower potential for growth.

Like every investor, you want to choose investments that will provide the growth and income you need to meet your financial goals. To do that, it's important to understand what your investment choices are and how different types of investments put your money to work.

Before you invest

While investments can yield great rewards, it is important to note that investing involves risk; there is no guarantee of return on money. Whenever you invest, there’s the risk that you won’t make any money and that you might even lose the principal (i.e. what you initially invest).  Perhaps the most important rule of investing that you should always follow is to never invest money you cannot afford to lose.

Before you invest, it is important to determine your financial goals and your appetite for risk (i.e. risk tolerance). Here are some questions to consider:

• What are your reasons for investing?

• What financial goals are you trying to accomplish?

• Is what you hope to achieve realistic?

• Are you more interested in keeping your money safe or seeking higher growth?

• Will you need your money in 5, 10, 15 or 20 years?

• Do you understand what you are investing in and is it appropriate to your needs?

• Will you invest on your own or use an adviser?

The key to investing is to strike a balance between risk and return. You should evaluate how much risk you are willing to take and how much risk you can bear based on your financial situation. Risks and potential returns vary greatly from investment to investment. Each investment has its own characteristics and some investments will be better suited to you than others.