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One of the best ways to grow a nest egg can be a regular investing plan. Investing (versus simply saving) can provide potential returns that help your money outpace inflation. Investing can also help you benefit from compounding.
How to start investing
Think about putting aside a set amount of money each month for a regular investing plan. You may decide to set aside a specific dollar amount or a certain percentage of your salary each month.
Investing the same dollar amount at a regular interval, such as investing $200 once a month, is called dollar cost averaging. This gives you the opportunity to invest regardless of where investment markets are at the time – you average into the market on a regular basis. A clear budget should help establish what surplus income you have to allocate to regular investment.
What investments should I choose?
Some people aim to rapidly grow their money and are willing to take a considerable amount of risk for that chance. Others prefer a slow, low-risk approach.
To figure out what approach is right for you, consider:
- Your tolerance for risk. All investments carry some risk, but investments with the potential for the biggest returns (the potential to make the most money) tend to come with the highest risk of losses too.
- Your investment time frame and long-term investment goals. What are you hoping to do with your nest egg? If you’re investing for distant goals, like a far-off retirement or private school education, you may want to be more aggressive and pick higher-risk investments, as you’ll have time to recover from any temporary setbacks or dips in the market. If you have more immediate needs for your nest egg, you probably want to stick to more conservative, lower-risk investments. If you have a variety of different goals, like regular travel, buying a bigger house, taking classes, retiring one day, your strategy may involve a variety of investments with different levels of risk.
What is asset allocation and why is it important?
Asset allocation is a very important component in an investment portfolio. Rather than placing all your money in one type of investment, you diversify your investments allocating a certain percentage to each of the major asset classes – shares and term deposits, property, fixed interest and cash. This can be achieved either through direct investment such as a property or shares, managed funds or a combination of both.
The right asset allocation for you depends on personal factors, such as your goals, your comfort with risk and how much money you have to invest.