Establish your investment goals
In such a case, the only expenses to meet are mine as I'm a single graduate and thus, there are no family responsibilities. With a surplus of $200, I would start investing immediately in a retirement scheme with an aim of saving towards a home purchase. Initially, I would consider investing in a highly risky long-term investment. The major reason for this making this investment decision is that I have less cash for investing and this will in creating value for the surplus income.
Determine the amount of money needed to obtain your goals.
Currently, I'm in the 20s and my goal is to have a saving worth $1,5000,000 in the retirement account at the age of 60. Thus, I will be required to save between $100 and $120 monthly. Further, saving for the house down payment which is 20% the price of the property, I will have to invest a minimum of $80 per month. Checking on the current economic progress, it is possible that I may get to 40K later in life. However, depending on the time frame I have yet to achieve these goals, I need to increase savings from $200. This would be possible in case of any promotion, or tax return.
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Specify the amount of money you currently have available to fund your investment.
Currently, only $200 is available. However, with chances of better jobs opportunities and promotions in the future, the retirement contributions will improve.
List different investments that you want to evaluate.
In the top list of my investments, I would like to evaluate mutual funds, IRA, and stocks.
Evaluate the risk factor (a) and the potential return for all investments (b).
Every investment regardless of the size or duration, it has its own risk factors and equal possible returns. For instance, a stock which is the most common investment is subject to public swing as the potential risk. Considering that I have a large sum to make the investment at the right time in the right company, it could have been more beneficial at the age of 60. However, the loss or gains from the stocks depends on the company’s reputation. For the mutual funds and IRA's, they do not have high-risk factor initially as I can start with a small sum in a medium to high-risk investment. More returns can be guaranteed as the investment moves towards a low risk. These two types of investment will have a great potential return if I will start early in life as I have sufficient time to grow before the retirement account mature.
Reduce possible investments to a reasonable number.
Considerably, I can reduce the home price to $150,000 and thus, I will have to purchase it earlier than I had planned. This idea may also turn to be feasible as the price of the property might increase over time.
Choose at least two different investments.
Business investments and real estate are what I would go for taking into consideration the longevity of the investment.
Continue to evaluate your investment program.
In general, if the stocks generate better returns, I will reinvest in purchasing properties as a long-term investment. This has also the potential for short-term investment if the value of the properties increases over time. Alternatively, with the aim of keeping overhead low, I may consider starting a small business that I start from at home comfort as I get to a reasonable cash flow. With this, I would be making mutual fund and IRA contributions simultaneously. It is at this age of my life that I need to take investment with greater risks as I have fewer responsibilities.
References
Altfest, L. (2016). Personal financial planning . McGraw-Hill Higher Education.
Kapoor, J. R., Dlabay, L. R., & Hughes, R. J. (1994). Personal finance . Irwin.
