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Is it time to think about your approach to investments?

The financial world can sometimes seem like a complex maze, which it’s impossible for most people to navigate. When finance professionals are struggling to get great results and to predict the future, how can enthusiastic amateurs possibly hope to succeed?

It seems to me that a successful approach to investing is all about having clear requirements in mind and then outlining a plan to meet your specific objectives. In fact, it’s only by identifying the fact that investment aims vary that you will truly create a plan that is likely to produce the results that you desire.

Different investing outlooks

Let’s stop there for a moment and consider what I mean by varying objectives. After all, isn’t it always the case that we are looking for the best possible returns? Ultimately, we invest money with the expectation of getting more money back.

I think that, broadly speaking, that would be a reasonable overview of what’s involved. However, it neglects to take into account a number of key concepts, including timescales and associated risks. In short, there is no right way to invest that meets the needs of every investor. Instead, you are faced with an array of decisions that will actually be a reflection of your own requirements.

Your attitude to risk

I’ve already made mention of the impact that risk will have on your financial decisions and this is clearly an area that requires greater consideration. Ultimately, investments that yield higher returns are often likely to be associated with higher risks too.

What impact is this likely to have on the decision-making process? I would say that a key concern here will be that impressive short-term returns are only likely to be generated if you are prepared to accept a relatively high level of risk. Is this something that you are comfortable with? It’s implicit, when making that judgement, that there’s also a chance that you will end up losing money. Indeed, some would suggest that there is a very fine line between investing at that level and simply gambling with your money.

What’s the alternative? If you opt for investments that are associated with lower risks, then you’ll almost certainly have to accept that the returns won’t be anywhere near as exciting. This may not sound ideal, but the reality is that it can work well for some investors. If you’re planning on continually investing over a long period of time, for instance, then you may not actually be in too much of a hurry to see those returns.

Getting the right balance

The decision is not always as clear-cut as the above explanation would suggest. In reality, you probably want to get some great returns, but you may not be content to follow a high-risk strategy.

You are probably likely to be looking for a balance. Indeed, the concept of creating a balanced portfolio is one that you will find is endlessly referenced within financial publications. The idea here is that you would have a mixture of investments. If some are associated with a higher level of risk and don’t do as well as expected, then the plan is that your lower risk investments will still provide the steady growth over time.

By the same token, it might be pointed out that those higher risk investments could be set to fly, significantly boosting your portfolio as a result.

What should you invest in?

You hopefully have a clear idea of what you are looking to achieve via your investments, but should you be worried about the types of investment that you opt for?

This seems to me to be a critical part of the process. Even if you have already decided that the bulk of your investments will be in stocks and shares, for example, then that is really only the start of the process. You’ll need to consider whether you will be investing in individual companies, for example, or looking to make use of other investment vehicles.

When you make your decisions, think about the level of interaction that you will be comfortable with over time too. Do you want to be in a position where you are constantly updating your choices, or would you be happier with a more static situation?

Getting your investment strategy right could be the key to a golden future. In order to achieve your aims, however, it’s clear that you’ll need to do some serious thinking at this point.

As a contributor to online, Simon Barnett is familiar with a wide range of investment opportunities. He’s also happy to write for a number of leading online financial publications.

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