Commonsense tips on investing while living home or abroad
“It is a wise man who lives with money in the bank, it is a fool who dies that way.” ~ French Proverb
No matter where you live, the financial planning and investment approach is not much different. By end of the day, the general goal is:
- Spend less than you earn
- Save for the rainy days
- Maximize the return on investment without taking huge risks
- Save for the future and retirement days
- Enjoy life – money is a mean to live, not the ultimate goal
This article is based on the personal experiences in investing; no formal education in investing or financial planning here. DO NOT base your investment decisions solely on these tips. This is a simple advice from one investor to another. Your situation and circumstances may vary, so this may not apply to everyone.
These are some of the useful and commonsense tips on investing:
1. Save: Yes, the first principle to maximize your net capital or net portfolio is to save. The saving does not always mean being overly frugal or cutting down on the basic needs like food consumptions (while that may not be a bad idea in many cases). Consider eliminating the unnecessary spending and waste. ‘50 tips on saving’ (below) is good article if you are looking for ideas on how to save.
2. Emergency fund: Before investing, it is always a good idea to have emergency fund that you can draw on, in case of emergency – such as loss of employment. Many suggest that you should have enough money readily available so you and your family can live off it for at least six months. Many other suggest having enough emergency funds for a full one year. Based on personal situation, decide on the size of the emergency fund. This money can sit in the savings accounts or other low risk options like short term certificates of deposits or low risk money market funds etc.
3. Understand your risk tolerance: Now, you may see advertisements boasting something like “double your money in x months with no risk”. Well, there is no such thing as ‘no risk’ when it come to investing. There are low risk alternatives or what many call ‘conservative approach’ to investment, but there is always some sort of risk. There is always a possibility that you may lose your shirt in many investments. So, make sure you understand the downside; make sure you can tolerate the short term or long term fluctuations in your investment choices.
4. Diversify: Diversification is one of the main methods used to minimize the overall risk of an investment portfolio. In other words, don’t put all your eggs in one basket. Stocks, mutual funds, real estate, precious metals like gold and silver – there are different choices to investments. Even within stocks and mutual funds, there are categories based on different company size and different countries etc. Before investing, it is not a bad idea to understand the diversification options that suits your situation.
5. Tax sheltered investments: Many countries offer ways to invest where your income is not taxed under certain conditions. For example, In America, Roth IRA and many retirement plans (401K) offer tax advantages if you don’t withdraw money until certain age. Similar options exist in Canada and other countries.
6. Buying a house vs. renting: Housing market in North America has been suffering for many years now. If you plan to live in certain place for a long time, consider buying a house instead of renting. Consult some realtor or financial adviser for all the incentives of buying house vs. renting.
7. Real-estate: Investing directly in real-estate is another way to diversify your portfolio. Many of us consider real-estate purchase in our home country, while other try easier ways such as buying real-estate focused mutual funds etc.
8. College Saving: Colleges are very expensive now-a-days. If you plan to send your kids to college, or if you plan to go back to college for higher education, consider putting some money aside for that. Many countries offer a variety of incentives on ‘college saving’ plans; it is something worth looking into.
9. Consult a financial advisor: Investing is not as simple as one might think. Don’t risk your hard-earned money based on advice from your neighbor, or even some tips like this article. All this can be good source of education, but you have to have a full grasp of risks and the downsides of investing. When in doubt, consult a financial advisor for bigger picture and best options to your investment needs.
10. Enjoy life: The best investment, by end of the day, is the investment in your own life. Saving money at the cost of personal convenience or personal satisfaction may be actual counterproductive to your own lifestyle, and that of your loved ones. Don’t make money and investment your sole focus, live your life and enjoy!
Once again, these are just general suggestions, so take all these with a grain of salt. Make your own decisions based on your personal situations and based on complete understanding of the investment options available to you.
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