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A Gentle Introduction to the World of Investing

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A Gentle Introduction to the World of Investing (1351 Words)
The United Nations does it. Governments do it. Companies do it. Fund managers do it. Millions of ordinary working people – from business owners to factory workers – do it. Housewives do it. Even farmers and children do it. ‘It’ here is investing: the science and art of creating, protecting and enhancing your wealth in the financial markets. This article introduces some of the most important concerns in the world of investment.

Your Objectives
Let’s start with your objectives. While clearly the goal is to make more money, there are 3 specific reasons institutions, professionals and retail investors (people like you and me) invest:    For Security, ie for protection against inflation or market crashes For Income, ie to receive regular income from their investments For Growth, ie for long-term growth in the value of their investments

Investments are generally structured to focus on one or other of these objectives, and investment professionals (such as fund managers) spend a lot of time balancing these competing objectives. With a little bit of education and time, you can do almost the same thing yourself.

Knowing Yourself – Your Risk Profile
One of the first questions to ask yourself is how much risk you’re comfortable with. To put it more plainly: how much money are you prepared to lose? Your risk tolerance level depends on your personality, experiences, number of dependents, age, level of financial knowledge and several other factors. Investment advisors measure your risk tolerance level so they can classify you by risk profile (eg, ‘Conservative’, ‘Moderate’, ‘Aggressive’) and recommend the appropriate investment portfolio (explained below). However, understanding your personal risk tolerance level is necessary for you too, especially with something as important as your own money. Your

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