Daily Money Minute

Fotolia_54867638_XS_7“Which investment should I choose?” ~Author Unknown

I hear this question being asked all the time but there is no easy answer. It depends on many factors not least of which is how much money you have and your attitude to risk. If you have a significant sum of money then you should spread that money across a number of different asset classes, as you wouldn’t want to put all your eggs in one basket. Diversification will help you spread your risk. Different asset classes include cash deposits, bonds, stock and shares, property and possibly other assets such as gold and precious metals. The mix you choose should fit with your investment strategy and the risk profile of the mix should be one with which you are comfortable. You do need to be able to sleep at night. Your primary aim should be to preserve the value of your capital such that over time at the very least it keeps pace with inflation. Once capital value is preserved your aim should be capital growth. Key to growing your capital will be regular income streams and the compounding effect of re-invested income over time. Re-invested income can really turbo-charge your capital growth over a long period of time. However unless you are lucky enough to have a large sum of money to invest, the place to start is to build a cushion of cash deposits to have something to fall back on. Typically this cushion should be equivalent to a minimum of three months earnings. Having something to fall back on should times get tough is a sensible strategy. Your next target will be the deposit for the purchase of your own property, assuming you don’t have one already. Once you have your own home then you can start thinking about saving for the acquisition of other assets like stocks, shares, bonds, et cetera. And don’t forget to learn as much as you can about money and finance. That knowledge will help you make sensible investment decisions and it’s never wasted.

© Roy Sutton and Mann Island Media Limited 2013. All Rights Reserved.

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