Investing is a battle where the heart and the brain play tug of war. The hearth draws us towards risky investments that can make us rich. The brain caution us to avoid risk and invest our money in safe low yielding financial instruments. The key is to find a balance between the two. If you follow your heart you might loose all your money speculating in Binary options. If you just listen to your brain you will end up sitting on safe investment that hardly beat inflation rates.
Finding the right balance between the two alternatives can be hard. One way of doing it is to divide your investments into several different portfolio. Each with a different risk profile. That way your hearth can be allowed to run one portfolio, your brain one and they can share a third. The higher risk a portfolio contains the smaller part of your overall investments. A high risk portfolio should not contain more than 10 -20 % of your total investable capital. This number can increase if your high risk portfolio has been very successfully and has grown on its own accord. If a high risk portfolio has been doing very good you should consider moving some of the profits to a portfolio with lower risk. If you do not you risk loosing all money again.
How high overall risk you should be looking for in your portfolios depends on your life and what the future might hold for you. You should always look for the highest possible return with the lowest possible risk. However since risk and return usually go hand in hand you need to adjust the amount of risk you accept based on your goals and your situation. If you are single, debt free and with a career you can take a lot higher risk than you can if you are starting a family and expect that you are going to need the money soon. The longer investment horizon you can devote your money to the higher risk/volatility you can accept. With a more long term investment strategy you can survive a setback without suffering too much from it. If you on the other hand is going to need the money soon you need to make sure that it is there when you need it. There is no time to recover from a setback.
You should always take a good look at your life and your goals before you decide on an investment strategy. You should also consider other things you can do with the money that might improve your life more in the long term than investing. You should among other things consider if you can use the money to take a class that would further your career and increase your earning potential. If you have high interest debt your should consider paying this of before you start investing. It is not unusual for credit card debt to have an interest rate of 10% or more. It is very hard to earn more than 10% return on your investment without exposing yourself to a lot of risk. Paying of your credit cards and other high rate debts give the same effect on your life. Completely risk free. Once your debts are paid you can use the money you save each month for investing. You should consider paying of all debt that is more than 5% higher then the national interest rate. In other words. If the national UK Interest rate is 1% you should pay of all debt that charges more than 6% interest.
While paying of high interest debt is a good idea it is usually a bad idea to pay of all debt. If you want to feel the financial freedom of being debt free then that can be a noble pursuit but it will not optimize your wealth over time. Low rate debt such as house loans are usually best to keep. In this case the return you will get by investing the money will be higher than the interest rate you pay on your loan. You will make a net gain by investing your money instead of paying of your debt. An exception from this rule is if your house is fully mortgaged. In this situation it can be good to pay down a part of the loan so you have a buffer if there is a drop in the housing market. Paying down your loan enough to feel safe even if the housing market goes down can give you a priceless sense of security and calm. A calm that make it easier to focus on your work and your investment. Something that allows you to earn more in the future.
On this site you can read a lot about different ways to invest your money. Some of them will be high risk and should only make a very small part of your profile. Others will be associated with lower risk and can be allowed to make up a larger part of your portfolio. We also feature articles about how you can get out of debt and increase your income. We feature information about both investment in financial instrument and other types of investments such as real estate. We feature information about both plain investments and investments where you can use sweat equity to improve your bottom line.
If you are looking for a an investment strategy that provides a good balance between risk and return we recommend a blue chip dividend portfolio. You can increase the yield while still keeping the risk low by expanding your stock picks to stable reliable companies that are not considered blue chip. By investing in a large selection of different dividend stocks you get a good risk dispersal. We recommend that you reinvest dividends in new stock. If you are diligent and have a little bit of luck you might one day be able to live of the dividends. If you choose stock wisely you can get a stock portfolio that gives you a good return simply from the dividends. Any increase in the value of the stock is just gravy on top. Gravy that can make you rich over time.