Top guides for how to multiply your money. All our experts state that your attitude to risk is one of the most important things to consider before you invest your £10,000. “You must ask yourself: how much risk am I prepared to take? How long am I investing for? What are my investment goals?” says Mr McDermott. For more on this read What is investment risk? He says a medium-risk person looking for capital growth across a minimum 10-year investment horizon could consider weighting their portfolio towards 40% in the UK, 20% in the US, 15% in Europe and 5% each in Asia, Japan and other emerging markets, as well as 10% in so-called absolute return funds.
Investors often place great importance on price-earnings ratios, but placing too much emphasis on a single metric is ill-advised. P/E ratios are best used in conjunction with other analytical processes. Therefore a low P/E ratio doesn’t necessarily mean a security is undervalued, nor does a high P/E ratio necessarily mean a company is overvalued. Some mistakenly believe there’s less to lose with low-priced stocks. But whether a $5 stock plunges to $0, or a $75 stock does the same, you’ve lost 100% of your initial investment, therefore both stocks carry similar downside risk. In fact, penny stocks are likely riskier than higher-priced stocks, because they tend to be less regulated.
Properly managing your credit is one of the most critical responsibilities of the financially responsible individuals. Your credit score plays a major role in your financial life. Your credit score determines whether you are approved or declined for major purchases such as buying home, car, or receiving approval for a credit card. Your credit score will also impact the interest rate that you receive on your major purchases. While buying a car at a 0 percent interest rate for 5 years can be a wise financial decision, paying for the same car at an 18 percent interest rate is a poor financial decision. See extra details on How to build a good credit score.
If you’re on a tight budget, even the simple step of enrolling in your 401(k) or other employer retirement plan may seem beyond your reach. But there is a way that you can begin investing in an employer-sponsored retirement plan with amounts that are so small you won’t even notice them. For example, plan to invest just 1 percent of your salary into the employer plan. You probably won’t even miss a contribution that small, but what makes it even easier is that the tax deduction that you’ll get for doing so will make the contribution even smaller. Once you commit to a 1 percent contribution, you can increase it gradually each year. For example, in year two, you can increase your contribution to 2 percent of your pay. In year three, you can increase your contribution to 3 percent of your pay, and so on.
Many good investors stress the importance of diversification. But Warren Buffett tends to disagree with the idea. Buffett says that diversification is for people who don’t know much about investing. An experienced investor should choose stocks on a long-term basis and should have faith on his/her investments. Some investors diversify their portfolios because they are afraid that any one stock might sink their entire portfolio; but, while doing so, it becomes much harder to keep track of the current events impacting each company. So, by diversifying, they might reduce the volatility of their portfolio, but at the same time they reduce their focus on individual investments. Buffett waits for opportunities to buy good stocks, and when those opportunities come his way, he takes full advantage. According to Buffett, “When it’s raining gold, put out the bucket not the thimble.”
About MultiplyMyMoney : I have more than 12 years of experience as an independent and personal financial and investment consultant. I used to run a financial blog called BuylikeBuffett which provided insight on investing, saving, money management, and all things finance. I am also the author of Your Financial Playbook: A Guide To Navigating The World Of Personal Finance a financial guide written to inform the beginning investor about the basics of the market. I decided to start a new site because I receive a great number of questions about financial topics on a daily basis. I figure that this would be a great way to answer those questions and increase financial literacy. I also figured it would be a good platform to write articles on everything from teaching how to get rich, explaining the basics of cryptocurrency, to detailing ways of rebuilding your credit score. I was the founder and president of New Horizons Financial Management, LLC, and was a registered investment advisor. New Horizons was an independent investment advisory asset management and personal financial consulting firm offering investment advisory services to high net worth individuals. See extra details at Multiply My Money.