Achieving your financial objectives
When searching for ways to make the best use of your available liquid capital, there is a wide range of ways to make or lose money. At OCN Group, we appreciate that the investment world can leave some people unsure how best to proceed, resulting in inertia and delaying any decision making for another day. Time is your friend when investing, and the sooner you start, and the longer you can invest will help iron out the peaks and troughs that will surely be encountered along the way.
We all see on the news the sensational headlines whenever there is a downturn in the financial markets, but less attention is given to the incremental increases that happen between these events. Over the last century or so, returns on the U.S. stock markets have outperformed all other types of financial securities as well as the real estate market. Again, the amount of time you have available to commit to investing will impact your returns, although there have been shorter periods when other assets outperformed stocks. On the whole, the stock market remains the most profitable area to commit your funds.
Beware of Inflation
With the interest rates on bank deposits so low, leaving your cash in the bank would leave you open to seeing the buying power of the funds eroded by inflation, possibly leaving you with less than you need to cover living expenses.
If you choose to invest in more traditional mediums such as property or a business, there is potential for you to generate high returns. Having all your money tied up in one type of investment, such as real estate, an illiquid asset, can make it difficult to access cash if you need it in a hurry. Also, any downturn in the property market could lead to a loss of value, and when real estate prices are falling, it can be more challenging to sell.
Investing in your own business not only has the potential to be profitable, but it will also make you your own boss, in charge of your own destiny, and provide you and your family with a way to generate income for many years, possibly handing the company down to your children and heirs. It can also give you an immense amount of self-satisfaction, knowing you have built something from the ground up. Running your own business is not all plain sailing though. You will be responsible for the salaries and well-being of staff, have to deal with hiring and firing, accounting and tax preparation, and all the other responsibilities that owning a business entails.
Diversification is Key
Whichever routes you choose, failure to diversify can leave you open to any downturn in that particular sector, whereas a widely diversified set of holdings should help to balance out peaks and troughs.
Over the past few years, there have also been some sectors of the stock market that have been hit harder than others. There was the dot-com boom, for example, and there are other companies and industries that are becoming less relevant in the modern world as new technologies and ways to do things emerge.
Having all or most of your wealth in a single company, such as might happen if you have built up a large holding from stock options, can also be dangerous. As long as the company continues to do well, you will be fine, but if this company is in one of the industries that experience a downturn, your financial wealth can be disproportionately affected. When the time comes to sell your options and stock holdings in this company, there may also be a large tax bill, which could have been better managed with a diversified portfolio.
Whichever investments you make, starting sooner than later in diversified holdings is the best way to ensure your family’s future financial security. Understanding these fundamental aspects is helpful if you choose to invest yourself, or you prefer to use the services of a professional company such as OCN Group.