The recession has hit America badly. The events that took place from the mortgage crisis to the stock market crash, and down to the collapse of major companies, were really traumatic, to say the least. It is a good thing the American market is currently showing signs of early recovery. Though there are still layoffs probably coming, experts believe the recession will not get any worse any time soon.
Be that as it may, it is again time to start thinking about investing your money. Whether in banks, foreign exchange, bonds, mutual funds or even the dreadful stock market, a lot of people are thinking of pumping money back in market, ready to roll their cash in exchange for a possible profit. However, is it really safe to invest in this current economic environment? The answer to that question is really up to you. Investing, after all, is not an objective option. It all depends on your ideal time frame and risk tolerance.
Often called the term, the time frame should be the basis of where to put your investments. Since investments are generally categorized as either risky or not too risky, time plays a crucial role in the investment world. The time-frame can be divided into three terms; short (less than a year), middle(1-8 years), and long(more than 8 years).
When it comes to the concept of risk, investors are generally classified into three groups; conservative, moderate, and aggressive. It is important that you are aware of your risk tolerance so you would know where to invest. To give you an idea of these classifications, let’s just say conservative investors prefer government and corporate bonds, while aggressive investors love the thrill of day trading.
Mixing it up
Both time frame and risk appetite is important in the world of investing. In fact, they should always go hand in hand because choosing your investment’s time frame is dependent on your risk appetite, and vice versa. For instance, you invest a chunk of your money in the stock market because you want to reap the benefits for the purpose of paying your child’s college tuition fees 18 years from now.
This is a really neat idea for a lot of parents out there, but not a very wise one as far as financial advisers are concerned. 18 years is a long term investment, and because the stock market is known to be a very volatile investment vehicle, you are not guaranteed that your investment would earn at the end of the 18th year. You may earn a lot during the 17-year stretch, but you can lose all of that in the last year. Take a look at the events that took place prior to the recession. Everything was going well; people were turning in profits in the stock market, when suddenly the market crashes and trillions of dollars drift away in an instant.
If you are investing for the long term such as 18 years, put your money in less risky investments. Go for bonds or life insurance. Leave the stock market for short or medium term investments. Unless you are Warren Buffett, stick to this concept and you will reap the rewards and smile all the way to the bank in no time.