How Broad Should Your Investment Portfolio Be?

Depending on your short or long term objectives, you will need to identify your target before considering to invest your money and more importantly: knowing how much to invest.

How do I know which investment duration to choose?

This all depends on your financial needs. If you believe that you will need to have access to your investment at any given time, you shouldn’t take any risks and should always opt for investments which don’t require your funds to frozen for any period of time. Liquid investments are always key in this instance.

However, if you have other investments which are liquid and want to invest additional funds, then you could always opt for longer term investments (5 to 10 years) which leaves your doors open to more choices. Although longer investments sometimes involve slightly higher risk, the rewards are significantly higher than those of short-term investments.

Let’s take a look at various investment lengths and what they mean for you:

Short term:

Professional investors and fund managers will generally classify a short-term investment as one which lasts 3 years or less. Those usually include a saving account, a money market fund or any other type of investment which offers you some sort of guarantee on your investment’s time frame. Although you don’t really benefit from high payouts, the main advantage of this type of investment is security of your funds.

Medium term:

Usually lasting between 3 to 8 years, a medium-term investment still contains minimized risk over the period of time of your investment, while the rewards are slightly higher than those mentioned in the previous point. With a good diversification of your funds and well thought-out placement of your investment in commodities, you can get a healthy return on your investment.

Long term:

Usually going beyond 8 years, long-term investments make time your best friend. This allows you to invest in markets which usually contain volatility in the short-term but which are historically the most profitable in the long term, given that they always get back to their original level before finding new peaks.

Finding your own objectives:

Your objectives are not only defined by the length of your preferred investment choices, but also by the amount of capital that you have. There are usually two types of investment: one which aims to generate capital from a low sum, and one which entails investing a large sum of money in order to generate periodic returns on that large investment. You should also always ask yourself what your goal is; if it’s to save for a house, retirement, or your kid’s college fund, avoid any risky investment which may hinder your goals.

How’s your temper?

Even if you find the perfect time frame and know exactly how much you’re going to invest, an investor’s nerves can sometimes be their own worst enemy. If a loss of 10% of your funds will stress you out, you’re better off opting for a safe investment which will not stress you out as much. Placing long-term investment in diamonds is the preferred method of many people simply because it is a safe method which gives you a steady return every year.

Source by Sushil Chand