Business English Investing in the stock market, an investment portfolio, considering the options

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The Best Ways to Invest in Foreign Markets

International investing can be a tricky endeavor, from language barriers and currency conversions to foreign exchanges and regulations. But at the same time, most financial advisors recommend holding at least some foreign stocks in a diversified portfolio. Fortunately, there are several easy ways to invest in foreign markets without picking up a new language or exchanging dollars for euros. Here is how to diversify abroad with U.S.-traded stocks and funds, as well as some important considerations for doing it properly.

Easily Diversify Abroad with ETFs and Mutual Funds

The easiest and most common way to invest in foreign markets is by purchasing exchange-traded funds (ETFs) or mutual funds that hold a basket of international stocks and bonds. With foreign holdings across multiple industries and countries, these two fund types provide investors with a quick and highly-diversified foreign component to their portfolio in just one easy transaction.

Investors can also choose between many different types of mutual funds or ETFs, including:

  • International Funds invest broadly across many countries outside of the U.S.
  • Regional Funds invest in specific regions, like Europe, Asia or the Middle East.
  • Country Funds invest in specific countries, like Spain or Russia.
  • Sector Funds invest in particular sectors across multiple countries, like gold or energy.

How to Find the Best Fund for Your Portfolio

So, what fund type is best for you? Ultimately, the answer to this question depends on the individual’s investment objectives and appetite for risk. In general, mutual funds are actively managed by professional investors, while ETFs are passively managed with holdings based on a preexisting index. As a result, mutual funds tend to be more expensive than their passively managed counterparts.

Once the right type of fund is selected, the next step is determining where in the world to invest. Most financial advisors recommend that younger investors seek higher-risk funds with the potential for greater returns, while older investors seek lower-risk funds that offer more stability. This often translates to greater emerging market exposure for younger investors and developed market exposure for older investors.

Finally, finding specific mutual funds is easiest using free online tools like the Yahoo! Finance Fund Screener or the Wall Street Journal Fund Screener. Meanwhile, ETFs can be found by browsing through some of the largest ETF provides, like iShares or SPDRs. In the end, investors should seek out low-cost, high-return funds that meet their investment objectives and risk appetite.

Buy Individual Foreign Stocks Hassle-Free with ADRs

Investors that prefer a hands-on approach can easily purchase many individual foreign stocks using American Depository Receipts (ADRs), which are U.S.-traded securities that represent ownership in the shares of foreign companies. Since they are denominated in dollars and traded on the NYSE, NASDAQ or AMEX, ADRs do not require any complex currency conversion or foreign exchange transactions.

Unfortunately, there are many foreign stocks that aren’t available as ADRs and must be purchased on foreign exchanges, such as the Toronto Stock Exchange (TSE) in Canada or the London Stock Exchange (LSE) in Europe. While some international brokerages offer a cheap way to purchase these stocks — such as InteractiveBrokers — investors should carefully check their brokerage’s fee schedule before trading.

Note: While buying and selling of ADRs occurs in U.S. dollars, any dividends issued will be denominated in the foreign currency and then converted into U.S. dollars upon distribution. As a result, there may be some currency exchange rate risk involved in those situations.

How to Find the Opportunities in International ADRs

Similar to international funds, investors should select individual stocks based on their investment objectives and appetite for risk. Investors looking for relatively safe bets can seek out larger established companies with ADRs, like Sanofi-Aventis SA (NYSE: SNY) or Rio Tinto plc (NYSE: RIO). Meanwhile, those looking to take on more risk may find more undervalued opportunities in smaller ADRs.

Individual ADRs can be found using the same stock screeners used to find individual U.S. stocks, since the securities trade on U.S. exchanges. One of the best free stock screeners online is Finviz’s stock screener that offers the ability to screen stocks based on a wide range of metrics.

The Bottom Line

International funds and ADRs are great ways to build international exposure into any portfolio without having to worry about foreign stocks or regulations. By keeping the aforementioned tips in mind, investors can be well on their way to achieving proper diversification for their portfolios!

How To Invest $50 In The Stock Market: A Beginners Gu >

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Most people wait to start investing until they have a significant amount of money saved up. This made sense a few years ago for two reasons:

  1. Mutual fund companies had high account minimums — some were as high as $3,000.
  2. Brokerage firms also charged high fees, which ate up the returns of small accounts.

But now there are high-quality, low-fee investment providers that let you get started for $50 (or even less, in some cases).

If you’re wondering how to invest $50 in the stock market (or any small amount, for that matter), this article can help you get started.

How to Invest $50 in the Stock Market

Before You Start Investing

Before you start investing in the stock market, you want to make sure it makes financial sense.

The #1 reason why you shouldn’t start investing is high-interest debt. If you still have high-interest debt (like credit card balances), it’s in your best interest to hold off.

The stock market has returned an average of about 7% per year after inflation.

So, if you have debt at a higher interest rate than 7%, paying that off is your best investment. It’s also a guaranteed rate of return — something the stock market can’t provide.

Next is understanding that investing in the stock market is a long-term commitment. Warren Buffett (one of the greatest investors of all time) famously said, “our favorite holding period is forever.”

In other words, go in with the mindset that you’re going to hold your investments long-term (or at least five years).

If you’re going to need your money in a month or even a year, the stock market isn’t the right place to put it.

Taxable Accounts vs. Retirement Accounts

There are two primary types of investment accounts.

  1. Taxable Accounts
  2. Retirement Accounts

In a taxable account, any income earned is taxable. That includes dividends and gains if you were to sell. Examples of taxable accounts include standard brokerage accounts, like the ones you’d get by signing up with Webull or Robinhood.

With retirement accounts, such as IRAs and 401(k)s, taxes are either deferred or paid upfront.

The difference between these account types is huge!

Let’s say you invested $50 per month for 40 years (between the ages of 25 and 65). If you placed those funds in a taxable account, you might end up with a figure around $50,000. If you placed them in a traditional retirement account, that figure might be closer to $75,000.

These figures are completely hypothetical and used here for teaching purposes only. Your actual returns would vary depending on many factors, including your investment choices and the overall economic environment. However, these figures (as illustrated in the chart below) show the impact of fees and taxes on the value of your portfolio over time.

Taxes eat away at your gains, so it’s important that you pick the right investment account. If your employer has a 401(k) and offers an employer match, this is a great place to start. You won’t come close to matching the returns your employer’s 401(k) match will provide.

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If you don’t have access to a 401(k) with an employer match, I’d recommend a Roth IRA. A Roth IRA allows you to contribute after-tax money today, then withdraw that money tax-free starting at the age of 59 1/2.

Why You Don’t Want to Pick Stocks

You might be thinking that you want to take your $50 and invest it in a company like Amazon, Facebook or Tesla.

However, if maximizing your returns is your goal (which it should be), that may not be in your best interest.

First, many investment firms don’t allow you to buy fractional shares. As I write this, a share in Amazon is trading around $2,000. You’d have to buy an entire share to just to get started.

But the most important reason why you might not want to buy individual stocks is because most investors don’t succeed with that strategy.

Few investors are able to pick individual stocks and beat the market. They might get lucky once or twice, but study after study has shown that few succeed in the long run.

To quote Warren Buffet again:

“Just pick a broad index like the S&P 500. Don’t put your money in all at once; do it over a period of time. I recommend John Bogle’s books — any investor in funds should read them. They have all you need to know….if you invested in a very low cost index fund — where you don’t put the money in at one time, but average in over 10 years — you’ll do better than 90% of people who start investing at the same time.”

What Is an Index Fund?

An index fund is a mutual fund that holds a collection of stocks.

For example, an S&P 500 index fund holds stock in all the companies that make up the S&P 500 (which includes the 500 largest companies in the U.S.).

There are a number of advantages to investing in index funds, especially for those wondering how to invest $50 in the stock market:

  • Low fees — instead of paying a commission every time you invest, index funds charge one very low rate
  • Tax efficient — because they don’t trade a lot of stocks, index funds incur minimal taxes
  • Low maintenance — you get a totally hands-off investment that beats 80% of investors

Where You Can Invest as Little as $50 in the Stock Market

The one downside to getting started with as little as $50 is that you’re limited to certain investment providers.

Many investment firms still have minimum deposits that start at $1,000.

Fortunately, there are a few good options I’d recommend to someone looking to invest a small amount.

Option #1: Betterment

First on the list is Betterment.

Betterment is what’s known as a robo-advisor.

One of the reasons why I recommend Betterment is because getting started is incredibly simple. Instead of making you pick from among hundreds of mutual funds, Betterment starts you off with a risk tolerance questionnaire. Then, they give you options based on your risk profile.

Their portfolios are made up of index funds, so you’re getting quality investments.

Just as important, their fees start at only 0.25%, and they have no minimum investment amount. That means you can get started for as little as $1.

Learn more about the company in my comparison of Betterment vs. Vanguard.

Option #2: M1 Finance

An alternative to Betterment is M1 Finance.

M1 Finance allows for a bit more customization of your portfolio. For example, if you wanted to invest 90% of your portfolio in index funds and 10% in individual stocks, the platform allows you to do so. (By the way, that 90/10 ratio is a decent compromise for those wanting to pick at least a few individual stocks on their own.)

You can read more in my detailed M1 Finance Review.

Option #3: Acorns

One other option worth considering for small investors is a micro-investing app called Acorns.

While you can make automatic contributions to your Acorns account, the company is best known for its round-ups feature. How it works is that every time you buy something, Acorns rounds up your purchase to the nearest dollar. Then, once a day, Acorns invests your “spare change” into your portfolio.

For example, if you purchase a coffee for $3.75 with a linked credit card, Acorns will invest 25 cents.

The downside of Acorns is that there’s a $1 monthly fee, although you can get four years of free service if you sign up using a valid .edu email address.

Learn more about Acorns on their website.

How to Invest $50 in the Stock Market: After You Invest

Once you’ve made your first investment, you may be wondering what to do next.

First, you want to set up an automatic deposit into your investment account.

Ideally, set up a recurring transfer from your checking account to your investment account for the day after your paycheck hits. This will help you make sure you actually move the money over (rather than using it for some other purpose).

Next, challenge yourself to increase the amount you’re investing.

If you increase the amount you invest by $10 each month, you’ll be up to $170 per month after just a year.

Next is being patient.

Investing is a long-term game. Those who win are those who are patient. This isn’t gambling, and you’re not going to find the next Google or Amazon — your goal is steady, consistent gains that compound over time. That may sound boring, but it’s the best way to grow your wealth.

You may want to check in every month or so to see how your investments are doing. That’s fine! Just don’t get too concerned if your portfolio value drops. Down markets are inevitable. Be patient. The last thing you want to do is sell when your investments have bottomed out.

And remember, that dip is just one brief moment in time. Remember the financial crash of 2008, when investors lost billions upon billions of dollars seemingly overnight? Well, here’s how that dip looks a little over 10 years later, on a chart showing the ups and downs of the S&P 500:

The worst crash in market history looks like little more than a blip on the radar.

So stick with it and have faith, even when things are looking ugly. That trend line is sure to take a sharp turn down at some point sooner or later, and that’s just fine — you’re in this for the long haul.

Top 10 investment options

While selecting an investment avenue, you have to match your own risk profile with the risks associated with the product before investing.

Most investors want to make investments in such a way that they get sky-high returns as fast as possible without the risk of losing the principal money. This is the reason why many investors are always on the lookout for top investment plans where they can double their money in few months or years with little or no risk.

However, it is a fact that investment products that give high returns with low risk do not exist. In reality, risk and returns are inversely related, i.e., higher the returns, higher is the risk, and vice versa.

So, while selecting an investment avenue, you have to match your own risk profile with the risks associated with the product before investing. There are some investments that carry high risk but have the potential to generate high inflation-adjusted returns than other asset class in the long term while some investments come with low-risk and therefore lower returns.

There are two buckets that investment products fall into — financial and non-financial assets. Financial assets can be divided into market-linked products (like stocks and mutual funds) and fixed income products (like Public Provident Fund, bank fixed deposits). Non-financial assets — most Indians invest via this mode — are the likes of gold and real estate.

Here is a look at the top 10 investment avenues Indians look at while savings for their financial goals.

1. Direct equity
Investing in stocks may not be everyone’s cup of tea as it’s a volatile asset class and there is no guarantee of returns. Further, not only is it difficult to pick the right stock, timing your entry and exit is also not easy. The only silver lining is that over long periods, equity has been able to deliver higher than inflation-adjusted returns compared to all other asset classes.

At the same time, the risk of losing a considerable portion of capital is high unless one opts for stop-loss method to curtail losses. In stop-loss, one places an advance order to sell a stock at a specific price. To reduce the risk to certain extent, you could diversify across sectors and market capitalisations. Currently, the 1-, 3-, 5 year market returns are around 13 percent, 8 percent and 12.5 percent, respectively. To invest in direct equities, one needs to open a demat account.

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2. Equity mutual funds
Equity mutual funds predominantly invest in equity stocks. As per current Securities and Exchange Board of India (Sebi) Mutual Fund Regulations, an equity mutual fund scheme must invest at least 65 percent of its assets in equities and equity-related instruments. An equity fund can be actively managed or passively managed.

In an actively traded fund, the returns are largely dependent on a fund manager’s ability to generate returns. Index funds and exchange-traded fund (ETFs) are passively managed, and these track the underlying index. Equity schemes are categorised according to market-capitalisation or the sectors in which they invest. They are also categorised by whether they are domestic (investing in stocks of only Indian companies) or international (investing in stocks of overseas companies). Currently, the 1-, 3-, 5-year market return is around 15 percent, 15 percent, and 20 percent, respectively. Read more about equity mutual funds.

3. Debt mutual funds
Debt funds are ideal for investors who want steady returns. They are are less volatile and, hence, less risky compared to equity funds. Debt mutual funds primarily invest in fixed-interest generating securities like corporate bonds, government securities, treasury bills, commercial paper and other money market instruments. Currently, the 1-, 3-, 5-year market return is around 6.5 percent, 8 percent, and 7.5 percent, respectively. Read more about debt mutual funds.

4. National Pension System (NPS)
The National Pension System (NPS) is a long term retirement — focused investment product managed by the Pension Fund Regulatory and Development Authority (PFRDA). The minimum annual (April-March) contribution for an NPS Tier-1 account to remain active has been reduced from Rs 6,000 to Rs 1,000. It is a mix of equity, fixed deposits, corporate bonds, liquid funds and government funds, among others. Based on your risk appetite, you can decide how much of your money can be invested in equities through NPS. Currently, the 1-,3-,5-year market return for Fund option E is around 9.5 percent, 8.5 percent, and 11 percent, respectively. Read more about NPS.

5. Public Provident Fund (PPF)
The Public Provident Fund (PPF) is one product a lot of people turn to. Since the PPF has a long tenure of 15 years, the impact of compounding of tax-free interest is huge, especially in the later years. Further, since the interest earned and the principal invested is backed by sovereign guarantee, it makes it a safe investment. Read more about PPF.

6. Bank fixed deposit (FD)
A bank fixed deposit (FD) is a safe choice for investing in India. Under the deposit insurance and credit guarantee corporation (DICGC) rules, each depositor in a bank is insured up to a maximum of Rs 1 lakh for both principal and interest amount. As per the need, one may opt for monthly, quarterly, half-yearly, yearly or cumulative interest option in them. The interest rate earned is added to one’s income and is taxed as per one’s income slab. Read more about bank fixed deposit.

7. Senior Citizens’ Saving Scheme (SCSS)
Probably the first choice of most retirees, the Senior Citizens’ Saving Scheme (SCSS) is a must-have in their investment portfolios. As the name suggests, only senior citizens or early retirees can invest in this scheme. SCSS can be availed from a post office or a bank by anyone above 60. SCSS has a five-year tenure, which can be further extended by three years once the scheme matures. Currently, the interest rate that can be earned on SCSS is 8.3 per cent per annum, payable quarterly and is fully taxable. The upper investment limit is Rs 15 lakh, and one may open more than one account. Read more about Senior Citizens’ Saving Scheme.

8. RBI Taxable Bonds
The government has replaced the erstwhile 8 percent Savings (Taxable) Bonds 2003 with the 7.75 per cent Savings (Taxable) Bonds. These bonds come with a tenure of 7 years. The bonds may be issued in demat form and credited to the Bond Ledger Account (BLA) of the investor and a Certificate of Holding is given to the investor as proof of investment. Read more about RBI Taxable Bonds.

9. Real Estate
The house that you live in is for self-consumption and should never be considered as an investment. If you do not intend to live in it, the second property you buy can be your investment.

The location of the property is the single most important factor that will determine the value of your property and also the rental that it can earn. Investments in real estate deliver returns in two ways — capital appreciation and rentals. However, unlike other asset classes, real estate is highly illiquid. The other big risk is with getting the necessary regulatory approvals, which has largely been addressed after coming of the real estate regulator. Read more about real estate.

10. Gold
Possessing gold in the form of jewellery has its own concerns like safety and high cost. Then there’s the ‘making charges’, which typically range between 6-14 per cent of the cost of gold (and may go as high as 25 percent in case of special designs). For those who would want to buy gold coins, there’s still an option. One can also buy ingeniously minted coins. An alternate way of owning paper gold in a more cost-effective manner is through gold ETFs. Such investment (buying and selling) happens on a stock exchange (NSE or BSE) with gold as the underlying asset. Investing in Sovereign Gold Bonds is another option to own paper-gold. Read more about sovereign gold bonds.

What you should do
Some of the above investments are fixed-income while others are market-linked. Both fixed-income and market-linked investments have a role to plan in the process of wealth creation. While market-linked investments help in navigating the volatility and in the process generate high real return, the fixed income investments help in preserving the accumulated wealth so as to meet the desired goal. For long-term goals, it is important to make the best use of both worlds. Have a judicious mix of investments keeping risk, taxation and time horizon in mind.

Investment Portfolio

A group of financial assets (bonds, stocks, cash, and cash equivalents, currencies, and commodities) owned by an investor

What is an Investment Portfolio?

An investment portfolio is a set of financial assets owned by an investor that may include bonds Bonds Bonds are fixed-income securities that are issued by corporations and governments to raise capital. The bond issuer borrows capital from the bondholder and makes fixed payments to them at a fixed (or variable) interest rate for a specified period. , stocks, currencies, cash and cash equivalents Cash Equivalents Cash and cash equivalents are the most liquid of all assets on the balance sheet. Cash equivalents include money market securities, Bankers Acceptances, Treasury bills, commercial paper, and other money market instruments. , and commodities. Further, it refers to a group of investments that an investor uses in order to earn a profit while making sure that capital or assets are preserved.

Components of a Portfolio

The assets that are included in a portfolio are called asset classes. The investor or financial advisor Financial Advisor A Financial Advisor is a finance professional who provides consulting and advice about an individual’s or entity’s finances. Financial advisors can help individuals and companies reach their financial goals sooner by providing their clients with strategies and ways to create more wealth needs to make sure that there is a good mix of assets in order that balance is maintained, which helps foster capital growth with limited or controlled risk. A portfolio may contain the following:

1. Stocks

Stocks are the most common component of an investment portfolio. They refer to a portion or share of a company. It means that the owner of the stocks is a part owner of the company. The size of the ownership stake depends on the number of shares he owns.

2. Bonds

When an investor buys bonds, he is loaning money to the bond issuer, such as the government, a company, or an agency. A bond comes with a maturity date, which means the date the principal amount used to buy the bond is to be returned with interest. Compared to stocks, bonds don’t pose as much risk, but offer lower potential rewards.

3. Alternative Investments

Alternative investments can also be included in an investment portfolio. They may be assets whose value can grow and multiply, such as gold, oil, and real estate. Alternative investments are commonly less widely traded than traditional investments such as stocks and bonds.

Types of Portfolios

Portfolios come in various types, according to their strategies for investment.

1. Growth portfolio

From the name itself, a growth portfolio’s aim is to promote growth by taking greater risks, including investing in growing industries. Portfolios focused on growth investments typically offer both higher potential rewards and concurrent higher potential risk. Growth investing often involves investments in younger companies that have more potential for growth as compared to larger, well-established firms.

2. Income portfolio

Generally speaking, an income portfolio is more focused on securing regular income from investments as opposed to focusing on potential capital gains. An example is buying stocks based on the stock’s dividends rather than on a history of share price appreciation.

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3. Value portfolio

For value portfolios, an investor takes advantage of buying cheap assets by valuation. They are especially useful during difficult economic times when many businesses and investments struggle to survive and stay afloat. Investors, then, search for companies with profit potential but that are currently priced below what analysis deems their fair market value to be. In short, value investing focuses on finding bargains in the market.

Steps in Building an Investment Portfolio

To create a good investment portfolio, an investor or financial manager should take note of the following steps.

1. Determine the objective of the portfolio

Investors should answer the question of what the portfolio is for to get direction on what investments are to be taken.

2. Minimize investment turnover

Some investors like to be continually buying and then selling stocks within a very short period of time. They need to remember that this increases transaction costs. Also, some investments simply take time before they finally pay off.

3. Don’t spend too much on an asset

The higher the price for acquiring an asset, the higher the break-even point to meet. So, the lower the price of the asset, the higher the possible profits.

4. Never rely on a single investment

As the old adage goes, “Don’t put all your eggs in one basket.” The key to a successful portfolio is diversifying investments. When some investments are in decline, others may be on the rise. Holding a broad range of investments helps to lower the overall risk for an investor.

Additional Resources

Thank you for reading CFI’s explanation of investment portfolio. CFI offers the Financial Modeling & Valuation Analyst (FMVA)™ FMVA® Certification The Financial Modeling & Valuation Analyst (FMVA)® accreditation is a global standard for financial analysts that covers finance, accounting, financial modeling, valuation, budgeting, forecasting, presentations, and strategy. certification program for those looking to take their careers to the next level. To keep learning and advancing your career, the following resources will be helpful:

  • Alternative Investment Alternative Investment An alternative investment is an investment in assets different from cash, stocks, and bonds. Alternative investments can be investments in tangible assets such as precious metals or wine. In addition, they can be investments in financial assets such as private equity, distressed securities, and hedge funds.
  • Investing: A Beginner’s Gu > Investing: A Beginner’s Guide CFI’s Investing for Beginners guide will teach you the basics of investing and how to get started. Learn about different strategies and techniques for trading, and about the different financial markets that you can invest in.
  • Stock Investing: A Gu > Stock Investing: A Guide to Value Investing Since the publication of «The Intelligent Investor» by Ben Graham, what is commonly known as «value investing» has become one of the most widely respected and widely followed methods of stock picking.
  • Types of Assets Types of Assets Common types of assets include: current, non-current, physical, intangible, operating and non-operating. Correctly identifying and classifying assets is critical to the survival of a company, specifically its solvency and risk. An asset is a resource, controlled by a company, with future economic benefits.

12 basic things everyone should know before investing

Contrary to popular belief, you don’t have to be an expert to start investing.

You don’t even need to be rich to invest, yet so many of us fail to get started managing our money because we’re intimidated or don’t know where to start.

However, investing is crucial. Inflation lops an average 3.87% off your money’s value every year, and investments are one of the only ways to grow your money fast enough to outpace it.

Investing takes on many different forms — from contributing to a tax-advantaged retirement account to buying stocks and investing in mutual funds — and it’s up to you to decide where to put your money.

To help you navigate the field of investing, here are 12 basics to understand before diving in:

This article was written by Business Insider without the involvement of Merrill Lynch.

When it comes to the stock market, past behaviour won’t always predict the future.

No one can reliably predict the market. While professionals can make educated guesses, predicting the market is predicting the future, and no one can do it, so don’t bother trying.

Investing is always a risk.

Little, if anything, is guaranteed when it comes to investing.

You could earn money or lose it, so if you’ll need quick access to liquid cash in the short term, you won’t probably won’t want to invest. Some professionals say you shouldn’t invest money you’ll need in the next five years, because if the market goes down, you won’t have enough time to recoup those funds.

You don’t have to be an expert to invest.

If your employer offers one, the simplest starting point is to invest in your office’s 401(k) plan. Next, consider contributing money to a Roth IRA or traditional IRA, and then you can research other investment platforms.

You don’t have to go at it alone: There are financial planners, wealth advisers, and robo-advisers to guide you.

There is also a wealth of information out there if you want to be a more hands-on investor. Check out some of our favourite books and podcasts that cover investing basics, strategies, and tips.

Starting early is a major advantage.

In your 20s especially, your biggest asset is time. For nearly every type of investing — including retirement savings — nothing can make up for the effect of compound interest. Plus, if you lose money in the market, you’ll have more time to make it back before you need it.

That said, ‘it’s too late to start investing’ is not a good excuse to keep your money under the mattress. It’s still better to start late than never — as long as you aren’t tempted into taking unnecessarily high risks to make up for lost time.

Just like in virtually every other aspect of personal finance, you don’t want to rely on investing to ‘get rich quick.’

You need a goal before anything else.

What are you investing for? What is the purpose? What is the goal or objective?

‘Start at the end. Know exactly what the goal of your investing is,’ Tom White, CEO of iQuantifi, a provider of automated, personalised financial plans, explains to Business Insider.

Once you have your objective established — saving for a home, your kids’ education, a vacation, or retirement — the time frame will become clear and you’ll be able to figure out how to invest your money.

You invest differently depending on how much time you have.

Your time horizon is the number of years between now and when you’ll need to use the money you’re investing. It should become evident after you establish your goal.

Once you have a time horizon established, you’ll have a better idea of where to put your money and will be able to form a strategy. Generally, the more time you have until you need the money, the more risk you can take. That way, if something goes wrong, you have time to recoup those losses.

‘In general, there are three types of asset classes in investing: cash, bonds, and equities (stocks),’ White explains. ‘And each of these three types have their own ranges of rates of return that you can more or less expect over a period of time.’ Understanding these rates of return will help you determine how to invest.

Note that no matter what your timeframe, you’ll want to maintain a properly diversified portfolio of investments (more on that in a moment). However, the following time frames may help give you an idea of where you might want to put more of your money:

If you need your money in 0-2 years .

The first asset class White mentions, cash, has several different sub-categories: savings accounts, CDs, and money market accounts. Cash typically has a low return rate, but is stable. Therefore, this is your best option if you need your money in the short term, White says.

If you need your money in 2-5 years .

‘Bonds in general, over a period of time, will generate anywhere from three to as high as eight per cent,’ White explains. ‘If you have an objective to reach in two to five years, bonds are most appropriate, because they’re more stable than stocks, yet they will generate a higher income than cash. They will fluctuate, but not to the degree of stocks in general.’

If you need your money in 5 or more years .

For any goal that’s over five years out, you can weight your portfolio more toward stocks, as they’re the most likely to eventually outpace inflation and get you the most return. ‘You should expect fluctuations,’ White notes. ‘Stocks have a huge range of returns, going from negative 38% as we saw in 2008, to even 30-plus per cent coming out in 2009 and 2020. But over a longer period of time, stocks have been reliably generating about 8% return over the course of 70 or 80 years.’

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