There are several ways to approach investments, and it all depends on what kind of investor you are. Before you start investing there are a number of factors you should consider. You should be able to know what type of investments you want to look for. This is very important so that your expectations are met. If you are unable to clearly define what type of investments you should look for you should not invest. Focus on this as a first step to investing. Every retail investor should define their profile.
Start by defining your goals
First take some time to think about what your goals as an investor are. Think about what you want to achieve, and on what investment horizon you want to achieve these goals. This should be the basis to define what kind of investments you should look for. With a long investment horizon, the amount of overall risk you can take can be much higher. If you have a short investment horizon you should avoid risks. This could pose a threat to your investments. By following this approach you can easily set the pillars in which your investment strategy will be built on.
Consider your risk tolerance
It is also very important to consider your risk tolerance. Being able to choose investments according to your risk tolerance can guarantee you far better returns. Returns that are appropriate to the type of investor you are. Do not choose investments that do not match the risks you are willing to take. Far too many investors make this mistake of choosing investments that are either too risky for them, or that are too riskless.
With greater risk comes greater returns
Remember that investments with high returns often have a high risk. This is a natural thing in finance. With more risk comes more potential returns, this is a well known relationship between risk and returns.. The same thing happens with low risk. If you take lower risk, then your expected returns will in turn be lower. It all depends on your investment type and the kind of goals you have. You should be able to pick the appropriate investments based on that profile and strategy
Choose a strategy for your profile
You should pick a strategy according to your investment profile. This is another key aspect. Remember to constantly change your strategy based on how your investment profile changes. For example with age you want to avoid risks, and so your strategy needs to adapt to your constantly changing investment profile.