Giving More Thought to Personal Investment
We think a lot here about the purpose of a Finance Director, and how someone in such a role can help a business of just about any size. As it’s been defined here before, the role is about helping a team meet its “objectives and growth ambitions.” And this is done primarily by way of managing any and all financial matters: payroll, taxes, forecasting and analysis, and so on.
These are essential functions in a company that is aiming to grow, and they certainly help to free up leadership to focus on business tasks. Thinking about financial management as a more general concept though, it is also one that individuals need to give some thought to. Even if you own or work in a successful business that is well run financially, it is important to devote some time to your personal financial growth as well. And in part, that means considering personal investment.
This is not something a Finance Director will typically help you with — save for perhaps in a special arrangement or with a particularly small company or solo operation. But it is something you can give more thought to on your own as you grow older and — hopefully — more financially successful.
The way we see it, giving more thought to personal investment comes down primarily to four considerations:
Diversification is a popular concept, explained by Forbes Advisor as a way to manage risk by spreading investments out across different companies, industries, and asset classes. But realy, the key to understanding this concept is that it is not meant to maximise returns (even if it can do so). Rather, it mitigates risk by keeping investment capital from being tied up in such a way that a given company or industry declining could cause too much harm. With diversified personal investments, you make each individual holding less impactful. Overall, the portfolio is far less likely to “tank,” and can instead make slow and gradual gains.
As we just conveyed, risk management is really at the core of diversification efforts. However, it’s also something that should be considered in other aspects of personal investment — right down to the tools and tech you might use to buy and sell assets. Today, a lot of those tools are actually designed in such a way that they encourage risk — making it quick and easy for amateur investors to start trading assets. On the other hand, the MetaTrader 4 trading platform on FXCM shows that there are also some features you can use (such as the ability to trade more lot sizes) specifically to minimise risk. Ultimately, this idea largely comes down to your attitude and actions in trading. But it’s still wise to consider risk management when choosing your general methods and favoured tech for investment as well.
It is also extremely important to approach personal investment with a clear sense of priority. Investing your own money for long-term growth should not be a vague or aimless process. Rather, you should think about how much you want to invest, what you hope to earn by a certain point, and what your ultimate goals for the venture are. You won’t have total control over meeting these goals, but they will help you to prioritise your actions (when to invest more, when to cash in, etc.) according to your personal financial ambitions — rather than in reaction to the whims of the market.
Lastly, it is also worth considering if any long plays are worthwhile — and if so, which ones. The bulk of your personal investment, if not all of it, should be directed toward strategic, gradual, low-risk growth. But when investing for the long term, some also see fit to put small sums into riskier options with the potential to pay off more dramatically. This might mean investing in an emerging technology. It may mean spreading out some investment funds across startup companies that show early potential. For some it even means buying up cryptocurrencies, which are still in what MarketWatch referred to as the “innovator stage”, and which thus carry long-term potential. Again, these kinds of “long plays” shouldn’t define your portfolio, and they are not strictly necessary. But it’s worthwhile to consider if and how you want to devote a small portion of your investment capital to these types of ventures.
Personal investment ultimately involves a lot of careful strategy. Most important of all is not to rush into it. But considering the points and ideas here will help you to establish a foundation for how you want to go about the larger process.