Investment Planning

What Homework do you Need to do Before Doing any Investments?

What Homework do you Need to do Before Doing any Investments?

Now making an investment decision is a wise thing to do. But what is wiser is the idea of doing your “homework” first. This homework if down by you with utmost care will result in long term benefits for you. Now let us have a look at the homework that needs to be done in a stepwise manner so that you make the right investment decision.

The first step

The first step is to figure out how a company makes money. Now the company never depends on just one particular option to make money. It is because the risks are many. There is always a chance of failure of any of the sector on which the company is financially dependent. So it is required that the companies do the proper research to finally understand not one but many other ways of earning money. It may involve making money through manufacturing and selling of products, by participating in the stock market, partnering with other companies, etc.

The second step

Now once you are through with the first step the next thing that is required to be done is to figure out how the company can continue making money. Now, this step is necessary and should not be avoided just because you did pretty well in the first step. It is because in the business industry nothing is ever stable.  Be it a small or a big organization any of these can get bankrupt at any point of time and vanish into thin air. Now f you dependent on a limited source, it may bring all of a sudden a lot of financial burden on you if you haven’t yet widened your options. So you need to figure out ways in which you continue making money other than the conventional method that you’ve decided earlier in step one.

The third step

Now, this step consists of market research. This step will help you in analyzing the various hidden opportunities in the market and then invest in the best company out there. Carrying proper market research will also acquaint you with the threats of the market, so you don’t end up making an unwise investment related decision. This market research is something you can’t and shouldn’t avoid.

The fourth step

Now the fourth step in completing your homework is to check the balance sheet of the company in which you are planning to invest. Go through the annual statement of the company carefully and look out if the company is indebted and if yes then by amount is it so.

The fifth step

It is the final step of completing your homework. In this, you have to make an evaluation which means that you will have to understand the valuation of the stocks. It will help you a lot onto finally deciding as to which company you ultimately want to invest in. And then go ahead with it.

Thus once you have completed all of the five steps, your “homework” is complete. And you will finally come to conclusions as to which company will be better for you to invest.

Your Guide To Investment Planning And Attitude To Risk

The key to investment is finding the right balance between risk and return. There is no such thing as a safe investment, despite what some financial advisers might have you believe. Risk is inherent and can be managed, but certainly not removed entirely. Investment planning is crucial in finding the right way to balance this risk and develop a portfolio that is aligned with your current circumstances and long term aspirations. Fundamental in this diversification is selecting assets that behave in different ways.

Investment ‘styles’

Some forms of investment can behave in a contrary way, so much so that they can be said to be in negative correlation with one another. For example, while property and bonds provide a stable investment with low returns, equities (stocks and shares) offer the potential for higher returns but with an increased level of risk.

By diversifying and creating a portfolio with the right blend of asset classes to reflect your approach to risk and return, it is possible to create a ‘safety net’ and ensure there is not an over reliance on a particular asset.

It is also possible to diversify in other ways, such as the size of the company you invest in, their geographic location and the sector they operate in. There are also different approaches to investment, namely growth and value investing. Growth equities are those where the value will increase over the longer term, whilst value equities represent a different type of investment as they are being offered at less than the company’s intrinsic worth. With conscientious investment planning, it is possible to reduce the overall risk rating of your investment portfolio.

A paper loss

With risk inherent in every investment, there are times when your investment will fall in value. This is known as a paper loss, as it will not represent an actual loss unless you choose to cash in on the investment at that time. If you are going to invest, the intrinsic risk involved means that at some point, you will experience a paper loss on the value of your investment. However, the less risk your investment portfolio is exposed to, the more gradual your returns, so, although you may not experience a paper loss, your returns will also be tempered.

Currency risk

If you are investing in asset classes in another country, you will be exposed to a risk over and above that a domestic investment would ordinarily face. When investing abroad, you also have to factor in the effect of the fluctuatigold_barson of currencies on your investment, as well as normal share price movements.

Another currency consideration that should be taken into account is the impact inflation will have on your investment. Inflation is the process by which the purchasing value of money falls in line with a general increase in prices. If the return on your investment is not greater than the current level of inflation, the value of your investment will actually fall. An investment in cash is one of the safest investments you can make, but only if the returns exceed the value of inflation over the longer term.

To conclude…

Past performance offers no protection against the future. The market value of investments and currencies is constantly fluctuating, which means the income you can expect as a return on your investment can fall just as easily as it can rise. Diversification is essential in managing this risk, but there is still no guarantee that you will receive more than your initial investment.

Author: Bartholomew Hawkins provides independent investment planning that reflects your tax position and is aligned with your general attitude to risk. For more information, please visit their site to learn more about investment planning or call 01291 40 80 80 today.

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