Financial planners have a tendency to make money management seem so complicated. Follow these 3 easy tips to simplify the management of your money. You will see the results in a stronger portfolio.
Tip #1 – Establish Your Time Horizon
When Do You Need The Money?
A time horizon is determined by the amount of time your money will be invested before you need to use it. This time frame will depend upon your objective for the money. Saving money to buy a house will require a different amount of time then saving money for retirement or your child’s college education. With shorter time frames you save money on investment fees and costs by investing in cash investments such as money markets, certificates of deposits (CD’s), treasuries. These are considered short-term investments because they are relatively liquid which means that you can get in and out quite easily and with lower fees.
Tip #2 – Determine Your Risk Tolerance
What Keeps You Awake At Night?
Your risk tolerance is a measurement of your comfort level with risk. If you match your risk tolerance with your personality you will not fret and worry about your investments to the point of losing sleep over them. It is not bad to be timid about risk, many investors are. An investment with greater risk will yield a higher rate of return but if the risk of that investment distracts you it is not the right investment for you. Our comfort with risk is usually based on our experiences and our stage of life. Many investors who grew up during the Great Depression are apprehensive about money; they understand the value of a dollar and that money does not grow on trees. Folks nearing retirement have a different opinion of investment risk than a young person just starting their career. Be kind to yourself, do not choose investments that are outside of your comfort level; you will be a better investor that way.
Tip #3 – Make Investing A Habit
Invest Early and Often
Investing on a regular, consistent basis is more valuable to the growth of your investment money than choosing the right investment mix. This is because markets go through cycles, by trying to time these cycles you are more likely to miss opportunities than to maximize them; money experts do not even have it down to perfection. But if you are consistently putting money into the market your money will grow regardless of which market cycle comes up.
You work very long, hard, back breaking hours for a reason….to make money. If you take care of your money, it will take care of you and some day maybe you can stop working. Think about it.