It is important that you approach the things that matter with purpose. There must be a concrete reason and plan behind everything that you do? Investing is one of these things. As you put your money aside, you need to have a full-proof plan on what you will be getting into and why you are doing it.
Investing part of your earnings is the most reliable and predictable way to amass wealth over the longer term and create more financial opportunities in the future. You can also do it for other reasons such as retirement, the education of your children, or buying a home.
Time is the greatest ally in your investment journey. As such, there is no perfect time to start investing.
But how do you go about investing with purpose?
Table of Contents
- What is Investing With Purpose?
- Why should you Invest with Purpose?
- Best Tips on how to Start Invest with Purpose
- 1. Check your Level of Preparedness for Investing
- 2. Pay off High-interest Debts First
- 3. Start Contributing to Employer-sponsored Plans
- 4. Have an Easily Accessible Emergency Fund
- 5. Determine your Monthly Investment Amount
- 6. Increase your Savings
- 7. Find an Investment Firm or a Financial Planner
- 8. Understand the Various Investment Accounts and Risk Associated Each
- 9. Understand and Invest in Real Estate
- 10. Make Sure to Invest in a Versatile Mix of Investments
- 11. Avoid Fraudulent Investment Schemes
- 12. Consider Rebalancing your Investment Portfolio from Time to Time
What is Investing With Purpose?
In general, investing with purpose is having a clear goal as to why you are investing. For many investors, this is mainly for financial gains. You can be investing to achieve financial freedom, or even for that dreaded retirement period.
However, no matter the purpose of your investment you can make it even more meaningful. These three investing strategies will help you do that:
These three investment branches guide you towards making financial decisions that not only meet your financial goals, but that also align with your personal values. For instance, ESG factors help you to make responsible investment decisions that consider the environmental, social, and governance issues.
This way, during your portfolio construction, you can only include mutual funds or ETFs that promote positive change on the planet. With ESG investing, the investment options you choose should be able to achieve the desired financial gains, in an environmentally and socially responsible manner.
Some of the areas that you can channel your investments to make them matter might include:
But before deciding on the best impact investments to make, you can include financial professionals in your research process. This helps ensure that you don’t end up investing in companies that only purport to be sustainable but are not.
Why should you Invest with Purpose?
If you don’t have a concrete reason for investing, you might not achieve much in the long run. Investing with purpose gives you the zeal to do more, so as to achieve your goals in good time. In addition, having a purpose guides you to the right investment options depending on your goals.
For instance, currently, everyone is talking about sustainable investing. This is a type of investing strategy that incorporates sustainability with the traditional risk evaluation and returns assessment strategies when making any financial decision.
If you want to make a difference in the world through your investments, then you should choose investment options that help you achieve this. Without purpose, you will invest in any company that comes along.
Best Tips on how to Start Invest with Purpose
When investing with a purpose, you must clearly set out your goals on what you want to achieve, and why you are doing it.
Here are some tips on how to start purpose investing:
1. Check your Level of Preparedness for Investing
If you want to start investing with a purpose, you should check your level of preparedness and readiness. You should not begin putting your money in investments if you are not truly ready. These pointers can help you ascertain if you are ready to start investing.
To begin with, you should not be charging money on credit cards. Secondly, ensure you are debt-free, as debts can really derail your investment plans. The only debt you can invest alongside is that of your house.
Thirdly, your monthly expenditure must be less than your monthly earnings. This is crucial to start putting a portion of your money aside for your investment, even as you try to pay off your debts.
Once you achieve debt-free status, you should seriously focus on investing to grow your money and create wealth. Begin investing with purpose by setting a personal goal of when you can start the investment journey. Start learning extensively about different types of investments and how they match up with your goals.
See Related: 10 Best Sustainable Investing Courses
2. Pay off High-interest Debts First
Debt is one thing that limits your chances of investing with purpose. You have to ensure you pay your more expensive debts before you can indulge in investing. Credit card debt is singled out because it is expensive due to the high interests levied.
Paying off each high-interest debt you owe is a wise investment strategy. It will also be less risky for you if you can pay off expensive credit card debt you might have accumulated over time.
This action frees up a lot of money you can channel to investments. Make sure to pay off the balance in full and as quickly as possible so that you can focus on investing.
You should be more aggressive in paying off any outstanding debts by setting up a prudent debt-repayment plan.
See Related: 5 Best Impact Investing Online Courses
3. Start Contributing to Employer-sponsored Plans
If you are in your twenties and you want to start investing with purpose you should take advantage of the investment programs availed by your employer.
This should include even when you are ready to start investing on your own. The employer-sponsored plans are a great way to invest for your future because they are exempt from taxation and will benefit from compounding effects over your entire employment period.
The advantage of employee-retirement plans is that most employers are willing to match the contributions made by employees. Therefore, such saving plans will help you be more committed to investing and set aside a larger portion of your earnings towards investments.
If you want to have a robust investment plan, you need to start saving after you start working. The longer your working years, the bigger your retirement earnings hence the need to start early.
4. Have an Easily Accessible Emergency Fund
Having an emergency fund and short-term savings before you can start investing is quite crucial.
Such a fund should not be affected by market fluctuations and should be easily accessible. You should purpose to put short-term savings in more liquid accounts such as money market funds, customer deposits, and savings accounts.
It is important to note that money put in short-term savings accounts will not earn you as much bigger returns as that invested in real estate of equities. However, these savings help you to wither market fluctuations that equities and real estate investments are exposed to.
Also, short-term savings is a great investment plan if you plan to access the money in a couple of years such as 3 or 5 years.
Money market funds and customer deposits are secure vehicles that preserve the value of your investment and help you earn a small interest. These investment vehicles should be utilized if the focus is on getting the return on your monetary investments.
See Related: How to Invest in Hydrogen (Step-By-Step Guide)
5. Determine your Monthly Investment Amount
Growing wealth is one of the reasons why we invest. And determining how much money you want to allocate to investing every month is the best starting point.
Although people wrongly perceive investing to be a money-intensive undertaking, it is not. It does not take a lot of money to start investing.
The importance of budgeting cannot be downplayed in your investment journey. You should determine what amount of money you can put in your chosen investments initially. Thereafter, you should determine how much you will be investing monthly and annually.
This way, you will be more prudent in your investing journey. The simple budgeting you inculcate in your investment plans will help you to set and stick by clear and achievable goals as opposed to investing haphazardly. It will also help you to fast-track the achievement of your goals.
Determining how much you want to invest should be independent of the operationalization of an emergency fund. Remember, the money you put in long-term investments is meant to help you grow your wealth and achieve your long-term savings goals.
6. Increase your Savings
Investing with purpose requires that you increase your savings over time as your earnings increase. Savings are necessary to jumpstart investing. Without savings, you cannot claim to start investing.
You should first establish the amount of money you want to save each month. Make sure you stick to your plan because such discipline will help you build your savings. Also, make sure you increase your set amount over time so that you achieve your saving and investment goals much faster.
You should only be able to do this if your earnings increase or your disposable income grows following the full repayment of your debts.
Start growing your savings as early as your twenties (20s). This is necessary to help you cultivate a strong saving culture.
7. Find an Investment Firm or a Financial Planner
It is important to engage the services of experts if you are focused on investing with purpose. You do not want to go alone and risk your money by engaging in ignorant investment practices.
In investment, knowledge is power. The high the quality of investment knowledge you can access, the better your investment decisions.
A financial planner will diligently take you through various investment tools available on the market and their risk profiles or advantages. Through the knowledge you will be exposed to, you will be able to get an in-depth understanding of the various types of investments and investment products.
Also, a financial planner will help set up a financial plan that is effective and implementable. They will help you find investment products that are in line with your investment goals and which will offer the best potential growth.
Investment firms are also important because they will help you understand the various investment risks and how to spread them across the various securities you purchase.
8. Understand the Various Investment Accounts and Risk Associated Each
If you want to learn the best ways to invest with purpose start by understanding the basic investing accounts and tools. Basic knowledge will go a long way towards making you more proficient in matters investing.
For instance, you should understand which accounts can help you start saving for retirement. This is important because you cannot afford to delay investing towards your retirement.
You need to understand the difference between investment accounts such as money market and mutual fund accounts. The understanding will help you spread your investments widely so that you can limit your exposure to risky investments.
A financial planner will immensely help you to determine your risk appetite so that you can prudently engage in investing. Remember, the younger you are, the more risks you can take because you have more time for the investment market to recover.
You can do a lot to understand different investment accounts and the risk profiles of each investment account. You can also ask investment managers some questions about investments.
Take reading about different investment plans seriously. Read online material, books, and investment magazines. Finally, you must do your in-depth research on investments so that you can grow your knowledge and become more comfortable with investing.
See related: How to Invest in Renewable Energy [Step-By-Step]
9. Understand and Invest in Real Estate
Real investment is considered a good investment because, although it is capital-intensive, it can help you achieve great capital gains in the long run.
Acquiring properties, holding them for a while, and selling them at a profit is one of the ways you can invest in real estate. This type of investing is called flipping properties. You can also purpose to invest in real estate with a long-term focus by developing properties and earning rents.
As an investor, you should seriously consider the differences before settling on a real estate investment that is in line with your goals.
There are also opportunities to invest in properties that can earn you passive income such as rents.
This is a great investment, especially during your post-retirement period. If you choose to invest in these types of real estate investments, be sure that the returns are enough to cover maintenance costs and leave a profit.
If you want to invest in real estate you should not go alone. You can talk to real estate investment experts to reduce the risk of making the wrong decisions. Also, to read widely on real estate investments.
10. Make Sure to Invest in a Versatile Mix of Investments
If you are not sure why investing with a purpose is important then you should try to understand the risks associated with investing. Pursuing investing purposely helps you to secure your investments from risk. One way to do this is to ensure you have a dynamic mix of investments.
Your mix of investments should include stocks, cash, bonds, and even real estate.
The returns of these asset categories are affected differently by market conditions. Therefore, investing in more than one asset category will help you to reduce risk. Also, the investment returns accruing from your investment portfolio will smoothly weather fluctuations in the market conditions.
Appropriate asset allocation is considered a way of investing with purpose because it directly impacts how and if your financial and investment goals. Diversification of your investments helps you gain big enough returns to help you meet your goals.
11. Avoid Fraudulent Investment Schemes
If your goal is investing with a purpose, you must also be aware that you can easily lose your money to fraudulent schemes. These schemes look attractive on paper but in reality, they can leave you dry after you lose your hard-earned money to fraudsters.
Scam artists understand the psychology of investors and stay informed of what is happening in investment markets. They can leverage highly-publicized news to attract potential investors into a trap. They do this by crafting an investment “opportunity” that is appealing and which looks legitimate.
Make sure you ask tough questions on the legitimacy of the investment “opportunity.” Also, ensure you check the legitimacy of the investment opportunities floating in the market with unbiased and trustworthy sources before you can venture out to invest.
Never be in a hurry to invest. This will expose you to scam artists and fraudulent operators. Instead, always take your time and engage trusted family members and friends before putting your money into any investment.
12. Consider Rebalancing your Investment Portfolio from Time to Time
Rebalancing your investment portfolio is another way of ensuring that purpose investing works.
Rebalancing is about bringing your investment portfolio back to the asset mix you originally had when you started to invest. After years of investment, there is a high chance that your portfolio is unbalanced and you are owning a sizable portion of your investments in one asset class.
Rebalancing enables you to spread emphasis in more asset categories as opposed to placing emphasis on just one category. This will return your investment portfolio to a level of risk that is comfortable for you.
Rebalancing also helps you sell high-performing assets and invest the money in distressed assets that are bound to appreciate with time. Therefore, you can buy low and sell high. This is a winning investment strategy that will earn you returns.
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