You work hard for your money. Did you know that money can also work for you? By investing your money, every dollar you invest is like a productive worker who tries to make even more money for you.

Investing is the key to wealth accumulation. By investing, you are in effect giving up an immediate possession of a sum of money in anticipation of a possibly larger amount of money that will be available for future consumption. With interest rates so low, merely stashing your money in the bank will not be enough to counter the effects of inflation.

The uninitiated may be afraid to take the plunge into the investment markets for fear of losing money. As scary as that may sound, you must accept that all investments involve risk to a certain extent. However, you can minimise risk as much as possible by following some basic investment guidelines.

Understand Your Investment Profile
Your investment profile is the key to determining which types of investment are right for you. Your investment profile depends on your risk tolerance, the required rate of return, the investment time horizon, and your age.

The first step to investing is to determine your reasons for accumulating wealth. Think of investing as a means to achieve your goals. Perhaps you are investing to generate funds for your child's education. In this case, you cannot afford to lose the capital and thus should invest in lower-risk instruments like unit trusts or bonds. If you are investing to make use of the funds lying dormant in your bank account, you can afford to take on more risk in your choice of investments.

In every investment made, there is always a risk that the future value of an investment may be less than the amount invested. Risk is actually a psychological concept rather than a numerical one. Some people are more risk tolerant than others. They can stomach the volatility of stocks, for example, in exchange for the possibility of high returns. Others take a more conservative stance as they cannot bear to lose any of their capital. When buying investments, remember to buy those that suit your own level of risk tolerance. It is pointless to buy a lot of stocks for their high returns if you are going to spend many sleepless nights worrying about share prices.

The younger you are, the longer your investment time horizon and the more risk you can take. You can afford to make a loss as you have the opportunity to recoup your losses later on. But if you were nearing retirement, investing in risky assets is tantamount to putting your nest egg on the line.

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