"If you do not know where you are going, every road will get you nowhere"
SET YOUR INVESTMENT GOALS
Your investment goals are unique to your circumstances and situation, but no matter what you aim to accomplish, it is vital that you take the time to assess your situation and establish a concrete investment strategy for your financial future. It is almost impossible to accomplish goals without knowing what they are, and it is therefore essential that you take the time to articulate your financial objectives.
Some investors will prioritize one objective over another, depending on their age, income and outlook. Although no one technique is superior to another, nonetheless, planning with the end in mind can help you make the right choices and decisions throughout your investing career and prevent the frustration of your investments not performing as you expected.
The truth is, your investment goals will likely be moving targets that change over time, and will be affected by factors such as your age, income and other factors. As life progresses, smart investors monitor and revise their goals regularly to ensure that they are still in line with their personal financial requirements.
WHY DO YOU INVEST?
While everyone has their own reason for investing, investment strategies typically fit into one of the following three categories. Each of them comes with its distinctive characteristics, advantages and disadvantages:
A short term investment is one that you invest in for less than one year. These are usually higher-risk, more speculative holdings that are expected to produce a substantial profit within a short period of time. Although any asset can technically be a short term investment, most share a few common features. They will typically be volatile assets, allowing investors to profit off the asset within a brief period. A short term investment will also mostly be highly liquid, allowing investors to sell the asset quickly.
The motivation for investors who choose to invest in this type of asset is usually either the high-reward possibility or the liquidity of the asset.
Medium term investments would be defined as investment that is held for more than one year but with the intent to sell it at some point in time. In general, these are held with the anticipation of an additional profit at the eventual sale.
These are often less liquid than short term investments and could be more difficult to sell at any given time but are typically less speculative and hold a lower level of risk.
As with medium term investments, long term investments are financial instruments that are kept for more than one year. Often times, these are income producing assets that generate a constant cashflow that benefits the investor while the asset gains value over time.
Though this is not always the case, long term investments often carry a reduced amount of risk when held over a long period of time, with investors prepared to endure short term price fluctuations and market downturns.
Most long term investments are usually highly illiquid and are best suited for those who don’t intend to withdraw their capital for a longer period of time.
CAPITAL GAINS vs CASHFLOW
What motivates you?
Before you invest in real estate, there are two objectives that you could focus on and you must determine which of them is of a higher priority to you. Capital gains or cashflow.
Simply put, capital gains is the game of buying and selling at a profit. Although this can be very profitable, there are a few drawbacks to this type of investing. Firstly, in order to profit from capital gains, you must repeat the work over and over again making it an active form of investing rather than a passive investment.
Furthermore, by purchasing an asset with the hope of selling it at a higher price, you could get hit by a decline in the market, leaving you with the option to sell at a loss or hold until you can sell.
Cashflow, on the other hand, is when an investment that you own returns money to you on an ongoing basis. When you invest for cashflow, you are less concerned with short term market fluctuations and, in fact, assets that you buy for their cashflow aren't as susceptible to market swings as capital gains investments usually are and can often profit from inflation during the hold period.
Capital gains are mostly taxed at a much higher rate than cashflow, which is considered passive income.
Deciding on the right investment vehicle depends on your personal investment goals. Unquestionably, riding a bike will not get you to your destination as fast as driving a car would, but if you are in no hurry and want to enjoy the view, the weather or the fresh air, a bike is your best choice. For travelling abroad, while a car might be more comfortable, spacious and convenient, an airplane definitely gets you to your destination much faster. The same is true with investment vehicles. Your choice of vehicle will depend on where you want to go.
BALANCING YOUR PORTFOLIO
The smart investor tries to find the perfect balance between capital gains investments and income producing assets to benefit from both categories simultaneously. As you age, you typically shift towards cashflowing assets as these are passive investments that require less effort and are generally a large part of any retirement portfolio.
In order to bring you the ideal combination to best suit your individual financial goals and objectives, we have put together a variety of investment categories. Whether you prefer cashflow or capital gains, long term, short term or medium term, at Bridgehall Group, we strive to provide you with the best options and investment opportunities.