Considering the lessons we picked up from last year’s and this year’s events, we can say that investing is a must. Not only to provide our savings a boost but also to give our reserves a chance to survive inflation.
Investing should be done wisely and systematically. If you’re not sure where to start, here’s a simple guide to help you start investing in 2022.
Step 1: Make a List of Your Financial Goals
Your financial goals will serve as foundations for all you want to achieve; therefore, it’s worth making a list of them. Moreover, having a list would allow you to determine which goals are the most important and should be accomplished first.
Your list also needs to be practical, and it may be beneficial to focus first on the goals that could be an asset to you.
Step 2: Review Your Finances
Being aware of your current financial position will help you determine how much you can invest and how long it will take you to achieve the goals you have established for yourself.
You can do that by subtracting your financial responsibilities (rent, utilities, grocery, lifestyle) from your income. The result will represent the amount you can use to invest.
Step 3: Consider Your Risk Appetite
Your risk appetite plays a vital role in investing and maintaining a balanced portfolio. That is why you need to know how much risk you’re willing to take before making any investment decisions. Keep in mind that the risk you’re taking increases as you pursue higher returns and vice versa.
Your risk exposure also grows due to factors such as a higher income and having fewer financial responsibilities and dependents. On the other hand, your risk exposure shrinks when you have debt, financial responsibilities that are over half of your earnings, no regular job, or near retirement.
Step 4: Keep a Diverse Portfolio
Allocating your money across multiple investment vehicles helps create a balance between risk and rewards in your portfolio.
A fixed deposit may be a safe option due to its ability to guarantee returns, but the interest rate it offers may not counter inflation. Furthermore, exposing your investment money to only one type of risk is a very risky move in itself.
Step 5: Make Sure You Have Enough Liquidity
Last year’s and this year’s events have underlined the importance of simple liquidation. Having an emergency fund in place is good, but it is also crucial that you’re not paying penalty fees for cashing out early when the need calls for it.
Step 6: Be Ready for 2022
Once you’ve figured out your approach to investing, the next thing you need to do is prepare for the upcoming opportunities.
With the market bouncing back from the decline that happened in the past couple of years, betting only on the pharmacy sector may not be as effective as before. Other companies and sectors, like manufacturing and logistics, have been recovering and may present you with investment opportunities.
Additionally, opportunities with higher return potential may be able to strengthen your portfolio further. Still, you need to do your research, as reliable information is crucial to your investment plans and choices for this year.