What you really need to know to make sound investment decisions.
Why are you investing?
Is your goal short-term in nature, like saving money to buy a new car or take a Caribbean vacation next year? Or do you have a long-term goal of accumulating money for your children’s college education or your future retirement?
For short-term goals, consider saving money in a savings account. This account offers liquidity (you can withdraw funds when you need them). Savings accounts provide safety of principal. Another choice is money market accounts, which provide income on cash reserves while preserving capital. However, the interest you can earn on these accounts is usually low.
With long-term goals consider placing your money in investment vehicles that can potentially offer higher returns. Examples include variable annuities, mutual funds, stocks and bonds. The downside of these investment opportunities is the potential to lose your principal (the amount of money you originally placed in the investment) if the securities decrease in value.
How much time do you have?
Once you decide your reason for investing, determine how much time you have until you will need the money. This is called your time horizon. Generally, the longer your time horizon is the more risk you can assume.
How much risk are you willing to take?
The more risk you’re willing to assume, the bigger the return on your investment could be. To determine your risk-tolerance
level, ask yourself this question: “What would I do if my investment lost money?” Would you immediately pull your funds out of the investment or remain calm, leaving your money in the investment vehicle?
Once you’ve answered these key questions, contact a financial adviser for help finding the right investment vehicles for you.
— Jamont McRae, FIC, is a Managing Partner and Registered Representative with Modern Woodmen of America.