What Should You Do In Picking An Investment Mix If You’re A Beginner In Investing

Let’s face it, not all of us are financially-savvy. There could be a variety of reasons why this is the case. For many of us, we lacked exposure to investing and financial matters, as kids. Our parents may not have had the means or the education, to expose us to the world of investment and finance when we were growing up.

Or perhaps it is because of our education. For some of us who pursued non-financial disciplines for our studies and later on, our careers, we never really had the opportunity to learn much about finance and investment.

So fast forward to now – we are approaching middle age or pre-retirement years, and have realized that in fact, we need to educate ourselves about finance and investment. But for those who lack the know-how, it’s a bewildering, confusing sea of financial products out there. We see our friends making money through investments and we long to do the same. But we are afraid that our lack of knowledge will cause us to lose money instead.

So, should we just give up completely, and hide all our money under our mattress??

Not at all! It is never too late to start learning about finance and investment. Today, there are so many opportunities to catch up on the basics that we missed out on before. You can check out online resources, newspapers and magazines, and talk to more financially-savvy friends.

There is no hard and fast rule to building up the right investment portfolio. This is because it is always subjective and very closely correlated with your individual profile and financial goals and plans. To start you off, here’s an intro to the basics on picking an investment mix that’s right for you.

Let’s look at some key criteria.

Firstly, your age. Unfortunately, the negative aspects of aging extend to not just our overall health but also, our investment profile. The general rule of thumb is, the younger you are, the better it is for your investment portfolio. Simply because you have more years of working ahead of you, and can therefore afford to take more risk as you have more years in which to make up any losses you may incur.

In other words, your risk appetite is high. The ability to take more risk, creates an opportunity to generate more returns. So for all those young readers out there, start building your investment portfolio. For the older ones, don’t worry, it is still not too late!

The other key (and possibly most important) factor is of course, your overall financial position. Obviously, if you do have a lot of spare cash to invest, you can afford to take higher risks – again, for the simple reason that if your investment does not pan out as planned, you can afford to lose the money you have earmarked for investment without it having any impact on your allocations toward other areas of obligation such as bills and other essentials.

Let’s face it, for the average wage-earner without other sources of income, there is usually not a lot of extra cash to spare in view of the rising cost of living. So, this for this category of people, it might be a good idea to be cautious in the beginning (even though low risk only attracts low return). Perhaps, start simple and then move on to more sophisticated and high-risk investment portfolios.

So, let’s say, in the beginning, you are a very cautious investor. You do not know much about investing yet and are just trying out the idea to see how it works for you. You do not want to lose money as you really cannot afford to do so. You can only “risk” losing a very small amount. So maybe you might consider a mix in the region of 60% in fixed income securities, 30% in cash form and maybe, 10% in the share market.

For a less cautious investor who can afford to lose a little money and has more experience and knowledge in investment, you’ve got more leeway in building up a stronger portfolio. Since you can afford to absorb more risk, how about a mix of something like, 50% in fixed income securities, 30% in the share market and 20% in cash form.

As time goes by and you become more familiar with investing and more confident, you could go for a mix of 50% equities, 40% fixed income securities and 10% in cash form.

If all goes well for you in your early investments, and your confidence has grown based on your track record, you should soon be able to join the “big boys” in the more high-risk investments which pull in the high returns!

As the saying goes, there is someone for everyone – it holds true for investment also! There IS definitely “something” for everyone. The best place to start is by considering all the criteria carefully, and customising an approach that allows you to pick the right mix for your investment portfolio.

Happy investing!