Investing is an opportunity for you to protect yourself against inflation by making your money work for you. People often find themselves in difficult financial situations, wondering what they could have done differently to be better prepared. Once you become aware of what investments are and how they can help, you need to start as soon as possible.
However, there are varying approaches to this endeavour, considering the many investment vehicles available. Each one has a differing level of success and likelihood of loss. It is up to the investor to determine which they are most comfortable with. As a result, there are generally three types of investors: aggressive, moderate, and conservative.
1. Aggressive Investor
When someone is willing to take a lot of risk for the promise of a great return, they are considered to be an aggressive investor. At the same time, they run the chance of an equally great loss. These people are high-risk takers, with no reluctance in preparing to earn or lose money, depending on how their bets go on the stock market.
Most aggressive investors are involved in day trading. For newcomers, this can be challenging, so getting the right fiduciary management can provide a better approach to the situation. It will help until they get used to the pace, as they are financial advisors working with the investor’s best interest in mind.
Aggressive investors usually succeed by studying the probabilities of the stocks, as well as paying attention to the news. But it can take some getting used to, so attending seminars and possibly even hiring someone to manage accounts can be of huge help. The news and charts can be a guide to their possible loss or success.
2. Moderate-risk Investor
A moderate risk investor is someone willing to hold on to stocks for a period while it is experiencing the pulls of the bear and the bull, so long as there is a promise of good returns in the long run. The main goal of this kind of investor is for their investment to beat inflation. They need to hold on to their stocks when their value is low and be aware of the right time to sell.
Following the “Financially Independent, Retire Early” (FIRE) movement, there are some moderate-risk investors that can live off their portfolio alone. They budgeted their expenses and learned that they could use their gains to finance their lifestyle. Although they would have a diversified portfolio, a bulk of it would consist of mutual funds.
Mutual funds are equivalent to having many baskets holding your different eggs. When you buy into a mutual fund, you will be investing in stocks and bonds. While some stocks do poorly, other stocks can be more successful. As a result, you are more likely to break even or earn from the dividends of the stocks and the interest on the bonds.
3. Conservative-risk Investor
Those who are risk-averse fall into the category of conservative-risk investors. Their portfolio will mostly make up higher-rated bonds or government bonds and money market funds. Government bonds are the safest form of investment due to the assured return on your investment, even if the interest is low. Money market funds are different from mutual funds in that money market funds are working with comparatively safer investments.
The less risk someone is willing to take, the lower their reward. Hence, if you consider yourself a low-risk investor, it might be better to look into real estate as an option. As the world’s population increases, the land becomes more scarce of a resource every single day. There is a higher chance of your investment doubling in value over time when it is property, so long as you do your research. Otherwise, government bonds and money market funds offer a much lower return compared to other kinds of investments.
A savings account is another kind of conservative return, where you can gain a small percentage of what you put in. The good thing is that it is a relatively more liquid source of funds in case of emergencies. This will be a reasonable option if you are deciding where to store your emergency or buffer fund.
Whichever kind of investor you consider yourself to be, the important thing is that you are starting to protect yourself against financial insecurity in the future. You are becoming more fiscally responsible with every bit of research that you do. Preparing for inflation is not an easy feat initially, but once you get a grip on investing, you will be able to sleep better at night.