Investing is a time-tested way to create financial capital that will work for a person, explained Elena Drozdova, an investment expert and author of a financial literacy channel.
According to her, any investment begins with answers to the questions: what does the investor want, what are his financial goals, what life situation is he in, what instruments does it make sense to invest in, taking into account the goals?
“When we define what we want, it is important to clearly define the goals, based on the following components: what, when, how much, in what currency? Our investment goals may include buying a home, funding retirement, or saving for education. Goals may change over time. It is important to make sure that you define and periodically review them in order to focus on achieving them, ”said the expert.
In addition, you should determine your risk perception (risk profile).
“It is the understanding of the goal and your perception of risk that further determine the tools you need. For example, if your goals are in a short time horizon and have a specific time frame, then stocks will not work for this. Or, on the contrary, the goals are long-term, and it will be inefficient to select bonds for 100%,” she explained.
Determining the current life situation will allow the investor to pay attention to what needs to be sold, rented, exchanged, or to think about how to reduce the cost of maintaining assets and liabilities in order to create a positive difference between income and expenses. At this stage, it is necessary to determine how much and with what frequency it is planned to direct investments, Drozdova added.