Best Investment Strategies For Every Financial Situation
You have to remember that investing is not an end, it is a means to an end, so your first step is to figure out why you are trying to both save your money and grow your money. If you are simply trying to build wealth, then you at least need a goal, you are indefinitely denying yourself money that you could otherwise be spending.
Why Is Having An End Goal Relevant?
In other words, why not simply build wealth indefinitely? The reason is that your end-goal will define your investing strategy and tactics. Take the example of a 60-year-old man who simply wishes to build wealth without an end-goal. He may aggressively pursue growth and lose a lot of money, only to realize that he actually wanted a lump sum to retire on. He could have simply kept the wealth he had already accumulated for another five years without risking it the way he did and have achieved his goal.
The paragraph above is not supposed to be preachy. It is simply a reminder that your situation is only part of the equation. The other part is what you are planning to achieve. Taking the advice on this article about what to do depending on your situation is fine, but it is useless if you do not have an end-goal or plan. It would be like teaching a man to fish and not telling him to stop when he has enough fish.
What If You Are Poor As S**t?
If you have less than $5000, then you should consider investments that are based on saving your money. It probably isn’t enough to start investing in shares unless you are going to invest in very risky penny shares. It is probably better that you save your money in a suitable savings account. You should add to your savings over time with the money you can save from your wages.
When you have saved a little more, between $5000 and $25,000, you may start investing in shares. It will allow you to diversify whilst still buying enough shares to make your efforts worthwhile. After all, if you buy too few shares at a time, then your brokerage (buying) fees will eat into your eventual profits.
Again, if you have $5000 or less, you may invest in shares if you wish. You could buy lower-priced and riskier shares, or you could buy med-cap shares and simply buy less of them, but neither are ideal situations.
If you have less than $5000, then concentrate on increasing your income, lowering your outgoings, and by all means make sure you get out of debt as quickly as possible because it is a wealth-sucking vampire.
Are You Aged Between 20 And 40 With No Dependants?
If this is the case, then you may find an aggressive strategy is best. Forget ISA, CDs, Bonds, Peer-to-peer lending and so forth, and make a few riskier moves. For example, you could put most of your money into small-cap and med-cap shares. If you have a little bad luck and lose your money, then you do not have dependants that will get hurt. In addition, your lack of dependants means you may be able to bounce back more quickly. If your investments pay off, then you may start investing your newfound wealth in safer investments, which may also include property and businesses.
What About Married Couples With No Dependants?
In this situation, you should follow the same course as a 20-40 year old with no dependants, however, and you may continue up until your 50s if you both work whilst sharing your bills.
On a personal note, the advice on the paragraph above is the common sense and smart thing to do if you are a married couple without dependants; however, I believe there is a slightly smarter way to go about it. My personal belief is that the couple should live on one partner’s wage, and that the other partner’s wage should firstly go towards paying off debt, and then go towards safe savings investments. This includes bonds, CDs, and things of that nature. The couple should save up enough to buy a house without a mortgage, which can be done within five years if the couple is strict and disciplined about how they save. Once the couple has bought a house without the burden of a mortgage, they may then take whatever risks they wish with their money so long as they never put their house at risk. They are free to do as they wish, and they have extra money to invest because they are no longer paying rent.
Are You Aged Between 20 And 40 With Dependants?
Your main priority should be to increase your earnings because having dependants usually means having less money to invest, and the financial future of your children should make you more risk averse. In most cases, increasing your earning power should take priority, especially in the earlier years when children do not cost as much.
If your earning power is sufficient, or if you have little potential to increase your earning power, then a conservative approach is needed. However, since you are relatively young, you may still like to risk between 5% and 20% of your investment budget into small-cap share such as penny shares. Their likelihood of failing is rather large, but some of them may grow at a reasonably good rate and prove to be good investments in the long run. In addition, there is always a chance that one of these smaller companies will become tomorrow’s big brand, and if you are able to hold off from selling too soon; you may have a little gold mine on your hands.
What About Married Couples With Dependants?
Both partners must work unless one of the couple earns enough to cover the bills, savings and an investment budget. If you are a couple with dependants, there is still a good chance you may invest for growth until the kids leave home. Just remember not to be too aggressive because you still have to be risk averse due to the fact you have children relying on you. Couples with dependants may still invest; it is just that they are likely to have a smaller investment budget. This doesn’t mean they cannot be wealthy if they have a reasonably diversified portfolio and do not take silly risks with lots of money.
Are You Over 40?
You may be in a couple or single, either way, you need to start converting your more-aggressive investing strategy into a more conservative one. It is now time to lower your risk and devote more time to your investments. Your first step should be to define your end-goal, which is probably going to involve your retirement plans. What are your retirement needs going to be? Will you have paid off your house? Will you still be making boat payments? Will you need money to move to Florida?
If you have built a reasonable sum of money by the age of 40, then you may be surprised at how conservatively you can play your investments. You still have over 20 years for your money to mature, and you can allow it to grow a little more slowly with less risky investments such as diversified bonds, CDs, and government-sponsored savings plans. There are investment trusts, unit trusts, national savings certificates and guaranteed income bonds for you to consider. You can still throw a little of your money at riskier investments, but on the whole you should take a more conservative approach.
Are You Retired?
If you are looking for answers because you have no savings and no investments, then this article cannot help you. If you are on a fixed income, then you may invest and build wealth, but you are at a disadvantage because you have less time to grow your money than a younger person does. Do not presume that all is lost, since retired people are living longer and longer, and you probably have fewer bills, so you are able to invest a little more.
If you are retired and/or a senior citizen and you have built a reasonable amount of wealth, you may have been told to take your money out of growth investments and try income-orientated investments. This is not a bad idea, but it is not “perfect” advice, it is just “good” advice. Perfect advice would suggest you consider how long you “think” you are going to live from this point. If you have lived a healthy lifestyle, have no illnesses and your parents lived into their 90s, then should you really stop growing your money at the age of 65?
The choice is yours, but you should consider how the cost of living will go up every year, and consider how your income-orientated investments (ones that pay you things such as dividends) may pay for less and less as time goes on. Sure, you could sell/liquidate a few investments here and there as time goes on, but that strategy will not last forever, and what if you live well into your 90s?