It’s hard to know where to start when it comes to investing. There are so many options, and they can be overwhelming. But that doesn’t mean you should avoid them altogether.
These three things could help you if you are considering investing.
1) Do your Research
Be sure you know what an investment is and how it differs from speculation or gamble. Don’t just give your money to anyone who promises big returns. If you’re thinking about investing in the stock market (which is generally regarded as riskier than other investments), be aware of the basic risks and strategies involved.
To invest your money productively, you need to know how much risk is involved in the different types of investments so that you can adjust to your comfort level.
With this knowledge, you can make investment decisions based on probability rather than sheer hope or guesswork. It’s a lot easier when you understand the potential risks in investment.
There are ways you learn more about investing in brushing up your knowledge before you spend a penny. Here are a few:
- Read some books on investing in educating yourself on the terminology and how to assess potential stocks.
- Join a stock advisor service. If you have no interest in the researching side of stocks, then there are services you can pay to join to give you suggestions based on expert research.
- Use a stock simulator before investing with real money, like the one Investopedia offer.
Your Financial Goals
Your financial goals are important to keep in mind as you decide on your investment strategy.
Make sure that whatever investment you choose, it’s consistent with your overall financial plans and objectives. If you’re building up a retirement fund, an aggressive growth stock may not be the best choice for you.
Dont ever invest more than you can afford to lose. Remember, there are no guarantees with the stock market, so never invest with a short-sighted view of money needed elsewhere.
Once you’ve decided on an investment approach, you might need some help putting together a written statement of your goals and objectives.
If this is the case, then writing down what you want to accomplish with your investments can be an important step in achieving those goals.
This should include how much risk you’re willing to take on and where you want to allocate your money at a bare minimum.
Remember, too, that you can change your mind later on if conditions or your personal situation changes and you want to alter the allocation of your money. In that event, you shouldn’t be locked into a long-term investment only because you wrote it down on paper at a certain point in time.
How Much Risk Is Appropriate for your Needs
The risk you’re willing to take should depend on your age, time horizon and liquidity needs.
If you don’t need to access the money for a long time or have an investment portfolio balanced with safe and aggressive investments, then more risky options may be appropriate.
If you’re young and need the money for retirement, then you may want to reduce your risk exposure because you need more time to recover from any losses sustained in a market downturn.
To determine what level of risk is right for you, consider how much risk is appropriate based on:
Your current financial position, taking into account your income, debts and emergency savings. Your investment time horizon is the period during which you can tolerate not cashing in on your investment and how soon you’ll need the money. For example, if you plan to retire in 30 years, it might make sense to purchase shorter-term investments while a 20-year-old may be able to afford more risk.
If a particular investment sounds too risky for you, don’t try to convince yourself that it’s actually not that bad. Reaching your financial goals is too important to take chances with money you can ill afford to lose in an investment.
Try many different investments and see what happens. Be willing to learn from your mistakes, and don’t beat yourself up if something doesn’t go quite right. Just take careful notes for future reference.
In the end, you’ll be better off for having learned how to evaluate investments instead of simply hoping they will turn out well.
Investing can be a daunting task, but it’s not as complicated as you might think. The three areas of focus that we’ve highlighted in this article are all critical considerations for any investor when deciding on an investment strategy.
Whether your goal is protecting money or growing it, understanding the risks and how much risk you’re willing to take will help guide your decision-making process.