Investing Basics - The 4 Pillars of Investing

Investing is never a stagnate path. It 's always changing our needs and circumstances change.

How we choose our investment options is very dependent on the general framework of our vision of what we want in terms of our personal and financial goals. If we define our objective to result in a clear, then we can define our investment strategy and take the right options for us there. This will ensure a much better chance of achieving our goal, compared to randomly grab whatever "hot" that comes our way.

Our vision framework can be defined by four considerations - the liquidity needs, goals and objectives, time horizon and risk profile.

Liquidity needs

Liquidity means the ability to convert an asset to cash quickly. You want to keep more cash or liquid assets (which can be converted quickly into cash) for daily needs or short-term, as well as for emergencies. You do not want to tie all your money in illiquid investments, because you will be in a fix in an emergency and need cash that you can not withdraw.

Aims and objectives

You must also consider what are your goals and objectives for investing. Do you have a specific goal in mind, like a home, or retirement? Be specific in defining your goal. Do not just say "I want to invest to have enough money for retirement." How much is enough? $ 50 000? $ 100,000? Having a clear goal and specific measurable will help highlight the type of investment instruments that will be used.

Time Horizon

How long are you allowing your investment to grow to achieve your goal? How long are you willing to wait to see your statements? 5 years? 10 years? 20 years? Maybe you are planning to get married and buy a house in 5 years. Or maybe you are investing for retirement in 20 years. The period of time will allow you to grow your investments will determine the type of investment options you take, because of the risks involved and the amount of initial investment required.

Risk Profile

What kind of risk you can tolerate? Can you sleep at night knowing that you put your money into a tool that will give you high returns, but with a high probability of losing everything? Or you can only have peace of mind when you know you put your money where there is very little risk of losing, but low rate of return?

This means that the investment is risky? Investing is risky when we do not have the education and skills. What we want to achieve is to increase the level of competency as an investor in knowledge and skills, in order to minimize risk and achieve high returns with every dollar you invest.

Putting together the four pillars

These four considerations are essential to find the types of investments we want to use the long list of available markets and paths out there today. Addressing these four areas that the course is pretty obvious .......