Investment for Beginners: Objectives, Risk Tolerance, and More

When it comes to investment for beginners, there are many things that you will potentially need to learn. Some of the subjects the you will need to learn about include investment objectives, risk tolerance, and asset allocation. Here are the basics of these introductory investment concepts and why they are important to you.

Investment Objectives

When you begin investing, you need to come up with an investment objective to work towards. The investment objective is the purpose behind your investing and what you hope to accomplish. There are many different potential reasons that you could have for investing. For example, you might invest for safety, for income, or for growth. These are three of the most common investment objectives. If you want to invest for safety, you are simply trying to maintain your current wealth. If you are investing for income, you want to create a regular payment for yourself. If you are choosing to invest for growth, you are going to hope to increase the amount of your investments through capital appreciation.

You might also decide to invest for other reasons such as tax efficiency. If you want to minimize the impact of taxes on your investments, there are certain strategies that you can utilize. You might also choose investments based on their liquidity. This means that you might be willing to sacrifice some returns in order to ensure that you will easily be able to liquidate your holdings at your request.

Risk Tolerance

Risk tolerance is another concept that you will need to become aware of when investing. Risk tolerance deals with your personal feelings towards taking on certain levels of risk. If you have a high risk tolerance, this means that you are alright with taking on riskier investments. If you have a low risk tolerance, this means that you want to invest only in relatively safe investments. If you have a medium risk tolerance, this means that you like to take on some risk but you want to remain safe at the same time. If you have a higher risk tolerance, this means that you might want to consider investing in growth stocks. With this type of investment, you can bring in a higher return on your investment, but you should be prepared for some volatility. On the other hand, if you have a very low risk tolerance, you might be more suited to investing in CDs or money market mutual funds.

Asset Allocation

Asset allocation is another topic that you will need to become aware of when getting started in the investment world. Asset allocation deals with how you divvy up your investment dollars between different types of securities. When you look at your portfolio, you might put some of your money into the stock market and some of your money into bonds. Asset allocation is just as important as how you choose your individual securities. You need to match up your asset allocation with your risk tolerance and investment objectives.

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