5W and 1h of investing
July 15, 2024
If you are thinking about investing your money, you might be wondering where to start, how to start or the most common question in our minds is DO I REALLY NEED TO INVEST.
It is a well known fact that if you have to increase your wealth, then there is no greater option but to start investing. But with a plethora of options available finding out the right investment strategy can be difficult and confusing.
Some of the common questions that we have about investing can be answered by the 5W and 1H framework.
What is the 5W and 1H framework
5W - refers to the Who, When, Why, Where and What of investing.
1H - refers to the How of investing.
WHY
This is more of why should I invest. The answer to this underlines the motivation behind your investing.
Financial Goals - Are you investing for a comfortable retirement, for your kids' education or for achieving financial independence? Learn more : How to set SMART financial goals.
Financial security - Preparing yourself for unexpected expenses or emergencies, inflation and future needs.
Grow your money - Generate passive money from your investments (e.g. dividends, rental income). Beat inflation so you can earn higher returns than traditional savings account.
WHO
Almost anyone can start investing irrespective of their age or income.
- You do not need to be rich or financially savvy to start investing. Also remember that it is never too early or never too late to start investing.
- However, before you start investing, understand your risk tolerance, time horizon, financial goals and your investment experience. This helps to determine an investment strategy that suits you so that you do not lose sleep during market volatility.
WHEN
Start ASAP to take maximum advantage of compounding.
The power of compound interest is what makes investing crucial and therefore it is important to start investing early.
Focus on long-term goals and avoid emotional decisions.
Invest consistently regardless of market conditions to build wealth.
WHERE
Decide where you'll invest your money.
- Brokerage accounts - Online platforms to buy and sell investments.
- Robo-advisors - Automated investment management services.
- Financial advisors - Professionals who provide personalized investment advice and manage portfolios.
- Retirement accounts - IRAs, 401(k)s, tax advantaged accounts with specific rules.
WHAT
Choose the type of investments that your want to hold or invest in.
Stocks - Ownership in companies. They offer potentially high returns but are also highly risky.
Bonds - Loans that you make to a government or a corporation that pay you a fixed rate of interest over a period of time. Bonds can offer steady income and have lower risk than stocks.
Mutual funds and ETF's - Baskets of stocks and bonds that are managed by professionals.
Real estate - Land and buildings, offering stable income and potential for appreciation. But they require effort and management.
Alternative Investments - Commodities, private equity, venture capital - they have higher risks and a potential for higher returns.
HOW
This covers your investment strategy and the methods of investing. Will you actively manage your portfolio, do you prefer a buy-and-hold strategy or dollar-cost average.
Compare the costs and benefits of each option and choose the one that matches your needs and preferences.
Set realistic goals and develop an investment plan based on your risk tolerance and time horizon.
Start small and diversify. Do not put all your eggs in one basket.
Rebalance your portfolio regularly to maintain the desired asset allocation.
Investing can help you preserve and grow your wealth in the long term. But, investing also involves risk and past performance is not necessarily indicative of future results.
Monitor your financial progress and adjust your investment strategy accordingly.
The 5W and 1H framework encourages you to do your due diligence before investing. This leads to clear objectives and better outcomes.
Be patient, disciplined, and enjoy the journey!
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