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Affluent Investors Identify Smart Investing as a Key Factor in Obtaining Wealth

Smart investing begins with an understanding of a number of personal investment factors, including attitudes towards risk, also known as risk tolerance, and financial goals such as purchasing a home, saving for college and retiring, according to the Financial Industry Regulatory Authority or FINRA. The agency recommends investors establish time frames for reaching their goals, and also assess their current net worth, as well as their debt obligations, calculate their cash flow, set aside an easily accessible emergency fund and review their credit score and its impact on household finances.
Smart investing also draws on basic concepts such as asset allocation, or investing wealth across a range of financial products. The practice requires an understanding of basic assets classes, such as stocks, bonds, savings accounts, real estate and precious metals, and the subclasses within these categories. Stocks, for example, can be broken down by market size, industry sector and style. An investor who has a good understanding of available financial products can optimize the strategy of diversification, a tool highly prized by millionaires. Diversification refers to the practice of investing across a wide range of asset classes that perform independently of each other. In a strategically diversified portfolio, gains in one asset class can offset losses in another.

Excerpt – Article | Wed, 03/21/2012 – 07:56 | By Adriana Reyneri