Self-Assessment for Online Investment

Doing a Self-Assessment
Investment strategies are as different as fingerprints. You need
to do a pretty thorough self-assessment to resolve the following
issues:


n How much can you afford to invest? If you have a lot
of credit card or other high-interest debt, your best
investment may be to pay it off first. Paying off a credit
card with an interest rate of 22 percent gives you an
automatic annual 22 percent return on the money you
spend toward paying it off.
n When and how often will you invest? Weekly, monthly
or annually? Investing incrementally and systematically
over time (for example, each month) reduces risk attributable
to market fluctuations. You’ll purchase some investments
at market highs and others during a decline. With
systematic, smaller investments, you don’t have to worry
about the day-to-day or month-to-month fluctuations.
n What are your investment goals? NAIC guidelines recommend
that you seek to double your investments every
five years in working toward larger goals such as college
savings or retirement.
n What is your tolerance for risk? Risk is inherent in all
investments. Many investors, when confronted with
unanticipated risks, start selling assets in a panic. This
reaction compounds their losses. The best approach to
assessing your personal risk tolerance is to identify the
direst worst-case scenario you can psychologically and
financially handle and not invest in a way that would
increase your losses beyond that.
n What industries and types of investments should you
include in your portfolio? Diversification is an important
step toward minimizing risks. It means that you
hold as many varieties of investments purchased at as
many different times as possible in your portfolio. You
should attempt to diversify the types of industries and
sectors of the economy in which you invest, the types of
securities you purchase (for example, include bonds and
mutual funds as well as stocks), and the timing of your
investment purchases.