Tips for Low-risk Investing

Investing is a savvy way to increase your net worth by essentially doing nothing. Create a solid investment strategy now to be set in the future.

It's important to be careful with your money, even when focusing on low-risk investments. There's no such thing as an investment with no risk, so you really need to research where you put your money. Learning how to invest money wisely can help you reach your goal a little faster.

1. How to decide how much to invest: 

The right amount of money to invest differs for everyone. To figure out what's right for you, define your investment goals, determine how long you can go without accessing the funds and decide how much — if any — of your money you can afford to risk.

2. Diversify your assets: 

Even the safest investments come with a risk, but you can decrease it by diversifying your portfolio. Distributing your funds among different types of investments helps you avoid systemic risk (which impacts the economy as a whole) and non-systemic risk (which affects a small portion of the economy or one company in your portfolio).

Create an asset allocation strategy where you include different types of investments in your profile, such as stocks, bonds, cash and real estate. This increases the probability that at least some of your investments will offer good returns if others lose value or prove to be stagnant.

3. Focus on tactical asset allocation: 

So how much should you invest in each category? There are two strategies. A tactical asset allocation strategy calls for investing an array of percentages in every asset class, meaning you can increase your distribution in a particular category when the stocks are expected to perform well and decrease it when they're projected to perform poorly. Conversely, strategic allocation is a buy-and-hold strategy. You set initial targets and intermittently rebalance your portfolio as returns alter original asset allocation percentages or your targets change.

4. Try to beat inflation: 

Since 2010, inflation rates in the United States have varied from a high of 3.2 percent in 2011 to a low of 1.5 percent in 2013. After accounting for inflation, there's a 1-in-3 chance that you won't get your investment back with a cash savings account, according to automated investing service Betterment, because nominal cash interest rates have recently been averaging around 1 percent or less.

If you're putting aside money for a long-term goal, such as retirement or your young child's future college education, strive for a 30 percent buffer over the original target to keep up with inflation.

4. Don't frequently monitor returns: 

It's only natural to want to keep a close watch, but doing so can cause you to lose money, according to Betterment. If you're monitoring your returns on a daily, weekly or monthly basis, there's a pretty good chance you're going to see a loss. Obviously, this will be alarming, and it could ultimately cause you to make a poor decision to reallocate your assets, hindering your overall performance.

Do your best to resist temptation and only check your portfolio once per quarter.

Source - tampabay.com