Sound Investment Strategies
The point of investing is to make money or at least stay ahead of inflation. What are the best ways to make money through investments?
All of us work a day folks would like to retire with enough money to travel, pursue our dreams, or just live our golden years in comfort. Many investors seek to move out of their daily routine into a world of finance and financial gain. Knowing how to make money through investments offers the promise of a richer and happier life. So, how do we approach the issue of how to make money through investments? If we just came into some money maybe the question is how to invest 10 000 dollars. For those with a sharp eye for real estate, it might be well to ask, what are profitable real estate investing products?
The most reliable way to make money through investments is to develop and use sound investment strategies as opposed to seeking a get rich quick scheme. The basics that underlie sound investment strategies are fundamental analysis of investments, calculation of intrinsic value of investments and diversification of risk.
The investment guru, Warren Buffett, only invests in a company when he fully understands what it does to make money and how it will continue to make money in the future. This is fundamental analysis. Hand in hand with an understanding of just what a company does and how this leads to profits is calculation of intrinsic value. This is the expected cash flow of a stock discounted to current dollars. When intrinsic value is higher than the current stock value it is time to buy the stock. This approach has made Warren Buffett one of the richest men in the world, currently ranking number three.
One Investment or Many?
It is certainly possible to make millions of dollars investing in just one stock. If you had purchased a thousand dollars of Microsoft the day it went public in 1986 and sold as it peaked in 1999 you would have seen your $1,000 initial investment rise 3,000 fold to around $3,000,000. But the problem is finding the investment that will hit the home run. Thus many investors diversify their portfolio to include stocks, real estate (first of all their home), bonds and cash. How do you diversify your investment portfolio?
Diversification is a means of reducing risk and increasing opportunity in investing. The chances of having a stock in your portfolio rise significantly in price goes up when you have five well-chosen stocks instead of one. The chances of losing all of your investment capital also go down when you diversify your investment portfolio among several stocks in several market sectors. Likewise, if a part of your investments is in property, a part is in stocks, a part is in bonds, and a part is in offshore investments you can reduce risk and increase the opportunity for profits.
There is always a bull market somewhere. Diversification is one of the sound investment strategies that help you plug into profits where they might have been expected. The investment book, A Random Walk Down Wall Street, supports the concept of diversification by noting that a well-diversified portfolio is more likely to prosper than one that includes only a couple of stocks.