Investing can be an effective way to grow your wealth faster than the rate of inflation. This allows you to build a stronger financial future, which could give you greater control over your life. Let’s take a look at what you should consider when making an investment.
What’s Your Timeline?
As a general rule, the easiest way to build wealth is to buy a stock, property or other asset and hold it for the long-term. However, there are instances when it could be advantageous to make a short-term investment as a hedge on your overall position. Let’s say that you own shares of Google stock, and you think that the stock will provide you with consistent returns over the course of several years or decades. Of course, nothing goes up in a straight line. If you think that the stock will go down over the next several weeks or months, you could purchase a put option to profit from that temporary dip.
What’s Your Risk Tolerance?
While all investments come with risk, some are riskier than others. For instance, there is generally more volatility in growth stocks than there is in government bonds. Ideally, you will have a mix of stocks, bonds and cash in your portfolio at any given time. You may also want to include gold and real estate in your portfolio as they aren’t necessarily correlated with the stock market. This means that you can still make money or minimize your losses when the market is falling.
Should You Use Money From a Structured Settlement to Invest?
If you have a structured settlement, it means that you receive regular payment stemming from a personal injury case. In some cases, these payments do not need to be recorded as income on a tax return. Even if they represent the entirety of your income, it may be a good idea to put cash from a structured settlement into an index fund or mutual fund. If you are in the lowest tax brackets, you may not have to pay capital gains taxes on any profits realized after the investments are sold.
Regardless of how much disposable income you have, it may be possible to start investing in stocks, bonds or commodities. It may be worthwhile to speak with a financial consultant to learn more about how to build and manage a portfolio tailored to your goals and risk tolerance levels.