Investing is fun. Right?

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At first sight this headline may ignite curiosity, skepticism and for some it may sound even a bit crazy. But it’s not. Investing is more than just looking for the highest returns, or sidestepping landmines called risky assets. While those are important aspects of investing; it involves so much more.

Investing can be comparable to an artist who expresses his personality, dreams and feelings through a well-designed and perfectly crafted painting. “Investing is an art” which requires the investor to understand and appreciate his own objectives, style and risk profile in order to translate these into choices of viable investment instruments.

What are my objectives? Too many times investors seek advice without knowing exactly what they want or more importantly what they need. This is tantamount to being lost and asking for directions to an unknown destination. How long am I able to invest my funds? Will I need access to these funds during the life of this investment? Are these funds earmarked for some major purchase? These are all questions we, as investors, must ask before making any investment decision. Investment instruments have varying characteristics and making uninformed decisions can prove disastrous for our financial objectives.

What type of investor am I? Earlier we mentioned understanding your style as an investor. It is important to define and apply one’s style when choosing investment instruments. Just as your sense of fashion/ style determines the outfits you wear; so will your investment style drive your investment decisions. Two individuals may share like profiles in that their investment amount, time horizon, age and even objectives are similar, however their individual portfolio of investments bear little or no similarities. This style is driven by one’s risk profile, which brings us to our final point…

Risk as it relates to investing refers to the probability of lower than expected returns on a given instrument. As an investor your risk profile is determined by both your willingness and your ability to take on the risk(s) associated with an investment. Willingness speaks to the level of comfort the investor feels while ability speaks to how quickly or easily one can recover from any possible losses. The risk profile of the investor will therefore skew investment decisions in one way or another.

The harmonious combination of these variables will ultimately determine our ability to seamlessly achieve our financial objectives. Understanding the importance of each will provide us as investors with clearer insight to the intricacies involved with creating our individual investment portfolios. Being able to successfully incorporate these factor variations to achieve differing objectives can fill an investor with as much adrenaline as a Nascar driver approaching that ineffable checkered flag.

Stay tuned for more as we look further into “Creating Your Investment Portfolio”

 

Blessedinvestor is a co-author/ contributor on financiallyawake.com. He is a certified Personal Portfolio Advisor with approximately 8 years experience in advising clients on optimizing their investment portfolio.

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