Finance is a field of study that is evident in almost every part of our lives since almost every activity including earning, saving, investing, and spending requires money involvement. Therefore, studying finance is significant step because it helps individuals develop knowledge and skills that will enable them to manage their financial needs. This investment plan involves the process of investing in different securities that will later enable people to achieve their financial goals. However, it is important to note that a successful investment is highly dependent on the risk-taking ability of the individual involved. Personally, I will consider various aspects of an investment including risks involved before settling on a suitable one.
Three (3) Ways I will invest in My Future.
First of all, I have learned that one should not harry to invest in any security before they identifies the purpose of investing in the first place. Various factors play a huge role in the way people choose their investment plans. Some of the factors include age, objectives, as well as the earning level of the individual. Therefore, some of the ways that might be perfect when planning for the future by way of investing include risk-taking capabilities, time value (need for increasing wealth/returns), and diversification.
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Throughout the course, I have learned that time value is essential since it involves investing in an investment that should grow the investor's wealth over time (Chen, 2020). This strategy dictates that the balance that comes between debt and equity needs to be maintained at all times and that one should not invest their entire funds into equities.
The other way that should be of major concern when planning for your future is by determining personal risk-taking capabilities that you possess. Therefore, a risk-taking individual should consider risky plans such as equities that will earn them higher returns and vice versa (Basu, 2019). However, first of all, it is always essential to determine the risk involved in any security of interest before investing.
Thirdly, diversification is one of the most important concepts to consider looking into before placing an investment. Diversification refers to the process of investing in many different securities, which is aimed at reducing the risk (Fernandez, 2017).
My Confidence Concerning Investing in My Future
Successful investment requires a well laid out plan that considers both risk and returns. Therefore, the best method and the most promising one is diversification since it is the only way to control risk. This means that the total risk of the entire portfolio can be dropped down to some extent. Thus, this method becomes one of the most recommended options for beginners who are advised to invest small amounts into different securities. Additionally, it not only protects the investor against losing wealth but also enables them to invest some money into gold since the price rises, especially during situations of recession (Fernandez, 2017). Recession creates a lack of confidence in the stock market and therefore purchasing securities such as gold to secure their funds.
Challenges with Investing in My Future
However, as much as diversification sounds as the best method, it also has some drawbacks that might be risky in some occasions. For instance, the process of diversification is known only to reduce non-systematic risks of the portfolio hence proving to be not all that safe. Systematic risk is also known as economic risk or market risk that is not possible to eliminate or minimize by the process of diversification (Fernandez, 2017). Therefore, one must consider the study of fundamental analysis and the process of hedging to deal with market risk.
Conclusion
Throughout this course, one has learned that planning for investment is crucial before making any decision and that there are some considerations to consider when making plans. For instance, some of the ways to consider when making an investment include time value, risk-taking abilities as well as diversification. Additionally, this course also teaches on the areas of investments in the future, which include mutual funds, stocks, and investment in bonds. Finally, it is always recommendable to look into the risks involved in certain security before investing.
Sources
Basu, C. (2019). The Concepts of Return on Investment and Risk. Zacks . https://finance.zacks.com/concepts-return-investment-risk-3049.html#:~:text=Return%20on%20investment%20is%20the,your%20investment%20will%20lose%20money.
Chen, J. (2020). Time Value of Money (TVM)." Investopedia . https://www.investopedia.com/terms/t/timevalueofmoney.asp#:~:text=The%20time%20value%20of%20money%20(TVM)%20is%20the%20concept%20that,the%20sooner%20it%20is%20received.
Fernandez, J. D. (2017). Two key benefits of portfolio diversification. Wealth Engineering . https://wealth-engineering.com/2017/07/31/two-key-benefits-of-portfolio-diversification/
