Investing can be a tricky and nerve-wracking experience. But it can also yield great returns and provide the savvy investor with a comfortable amount of extra money over the long-term. Before you jump into investing, there are a few things you should know so you can evaluate whether investing is right for you — and decide how to begin.
Be Aware of the Risks
Each specific investment has its own level of risk attached. Knowing the risk doesn’t just mean being aware of how much money you could make or lose in a certain period of time. It also means knowing your own financial goals, your predilection to making emotional decisions, and how much time you can devote to research and reinvesting.
An investment broker buys and sells investments on your behalf, and often does other things like consulting, offering advice, and managing portfolios. Brokers take a percentage of what you make from your investments, but having a broker is important, especially if you’re new to investing. They’re professionally trained to manage money, and have access to specific information and trends that’ll help you make investment decisions. Also consider following financial experts like Gary Crittenden on Twitter to get investment advice straight to your feed.
Know How Much You Can Spend
Putting down a chunk of cash to purchase assets isn’t the only money you’ll spend. Brokers, of course, charge for their services, and many investments like mutual funds come with attached fees. Don’t forget about taxes, either, because they take a bite out of what you’re expecting to make. The number you see when your broker calculates your dividends and returns is unlikely the number you’ll actually be keeping. So factor these things in when considering how much money you can afford to invest.
Don’t Invest in What’s Popular
A lot of financial and investment advice exists, and much of it is centered on telling people about the hottest investments. Something to consider is that this advice is often based on predictions about how investments are going to do, and no matter how legitimate the source, these predictions can be and often are incorrect. It may be tempting, but resist throwing your money at something just because it’s the day’s hottest trend. Time will tell whether these investments are truly good ideas.
Diversify Your Investments
Choosing the right number and kind of stocks is just one step in having a diverse portfolio. You also need to consider bonds, money markets, mutual funds, and treasuries. Don’t only invest across industries and companies, but other classes of assets as well. Different classes of investments have different levels of risk, so your money is much safer with a diverse portfolio, especially in case the market fluctuates severely or crashes again.
Don’t allow uncertainty or apprehension to prevent you from investing. A few simple tips, like knowing the risks, finding the right broker, and creating a diverse portfolio, will help the newest investors find the right financial path. With research, planning, and assistance, you can create a healthy portfolio.
Alexandra Shostak is a freelance copywriter and graphic designer.