How to Start Investing: What to Invest in
Edna and Jonah nodded their heads, all this made sense and seemed vey clear.
“But how do we know what to invest in?” asked Edna
The financial advisor smiled and told them that there are 3 more questions they have to ask themselves:How long can you invest the money for? He explained that investors are usually considered Long Term (can invest their money for 5 years or more) and Short Term (can invest their money normally for 1-2 years). It is important to know how long you can stay without that money. If you need the money in 1 year then you cannot invest in a risky investment, because your investment value could go down and you would loose the money you need.
How much of your money do you want to invest? The money you have is called your “Financial Capital”. How much of this Capital do you want to invest in now?
How much Risk can you bear? This is the most important. Risk is basically the chance that the investment will fare worse off than you expected it to. Let’s assume you decide to invest $200 and the investment can either give you $10 return or you can lose $10, the risk is that you can loose 5%.
Never Invest in anything that does not meet your risk tolerance.
Edna and Jonah had a lot to think about before they started to invest their money. They waked home talking about everything they had learnt.