In this section, we will look at what you can do to make your savings work for you. Here are a few basic concepts to get you started:
TIME IS ON YOUR SIDE
Start saving as early as possible
Example : John (age 20) and Peter (age 40) both save $250 a month for five years (total amount invested during that time: $15,000 each). By age 60, John will have saved five times as much as Peter.
Save for as long as possible
You don’t need to save as much to reach your goals if you can save over a longer period of time.
Diversification is a golden rule in investing. By using various financial instruments and investing in different markets, you reduce your portfolio’s risk level.
To develop a sound investment strategy, it helps to know what type of investor you are based on your personal situation and risk tolerance level.
Determining your investor profile is an important step and can help you decide how the assets in your portfolio should be distributed. You don’t have to be an expert to maximize your investments; just talk to an investment advisor.
Determining asset distribution
Asset distribution is the percentage of your portfolio invested in each of the following three major
- Liquidity: Treasury bills and short-term deposits
- Fixed income: Bonds, long-term deposits
- Growth: Stocks, mutual funds
Rate of return vs. portfolio risk
Your portfolio’s rate of return is directly proportional to your risk tolerance level, so it’s important to know your investor profile before you invest.