INVESTMENTS

Determining Where You Will Invest

Of course, any speculation begins with researching the various available types of investments, determining your risk tolerance and your venture style – along with a well rounded picture of your financial goals.

If you were going to purchase a new car, you would do quite a bit of research before making a final decision and a purchase. You would never consider purchasing a car that you had not fully looked over and taken for a test drive. Money ventures work much the same way.

You will of course learn as much about the investment as possible, and you would want to see how those with experience with it have done as well. It’s common sense!

Learning about the stock market and investing takes a lot of time… but it is time well spent.

There are numerous books and websites on the topic, and you can even take college level courses on the subject – which is what stock brokers do. With access to the Internet, you can actually play the stock market – with fake money – to get a feel for how it works.

You can do this with any search engine for ‘Stock Market Games’ or ‘Stock Market Simulations.’ This is a great pre-stock market exercise.

Other types of investing – outside of the stock market – do not have simulators. You must learn about those the hard way – by reading.

As a potential investor, you should read anything you can get your hands on about investing by starting with beginner books and websites. Otherwise, you will quickly find that you are lost.

Finally, speak with a financial planner. Tell them your goals, and ask them for their suggestions – this is what they do! A good financial planner can easily help you determine where to put your money, and help you set up a plan to reach all of your financial goals. Make sure you pay attention to what they are telling you!

Investment Strategy

Because investing is not a sure thing in most cases, it is much like a game – you don’t know the outcome until the game has been played and a winner has been declared. Anytime you play almost any type of game, you have a strategy. Investing isn’t any different – you need a strategy.

Such a strategy is basically a plan for investing your money in in a variety of ways that will help you meet your financial goals in a specific amount of time.

Each type of investment contains an individual category that you must choose from. A clothing store sells clothes – but those clothes consist of shirts, pants, dresses, skirts, undergarments, etc. The stock market is a type of investment, but it contains different types of stocks, which all contain different companies that you can invest in.

If you haven’t done your research, it can quickly become very confusing – simply because there are so many different types of investments and individual investments to choose from. This is where your strategy, combined with your risk tolerance and investment style all come into play.

If you are new to investments, work closely with a financial planner before making any investments. They will help you develop an investment strategy that will not only fall within the bounds of your risk tolerance and your investment style, but will also help you achieve your financial goals.

Never invest money without having a goal and a strategy for reaching that goal! This is essential. Nobody hands their money over to anyone without knowing what that money is being used for and when they will get it back! If you don’t have a goal, a plan, or a strategy, that is essentially what you are doing! Always start with a goal and a strategy for reaching that goal!

The Importance of Diversification

“Don’t put all of your eggs in one basket!” You’ve probably heard that over and over again throughout your life…and when it comes to investing, it is very true.

Diversification is the key to successful investing. You must build a portfolio that is widely diversified!

Diversifying might include purchasing various stocks in many different industries. It may include purchasing bonds, putting money in money market accounts, mutual funds, or even in some real property. The key is to invest in several different areas – not just one.

Over time, research has shown that investors who have diversified portfolios usually see more consistent and stable returns on their investments than those who just invest in one thing. Diversifying within several different markets will give you less risk as well.

For instance, if you have invested all of your money in one stock, and that stock takes a significant plunge, you will most likely find that you have lost all of your money. On the other hand, if you have put money into ten different stocks, and nine are doing well while one plunges, you are still in reasonably good shape.

A good diversification will usually include stocks, bonds, real property, and cash. It may take time to diversify your portfolio. Depending on how much you have to initially invest, you may have to start with one type, and invest in other areas as time goes by.

This is okay, but if you can divide your initial financial growth funds among a variety of interests, you will find that you have a lower risk of losing your money, and over time, you will see better returns.

Experts also suggest that you spread your investment money evenly. In other words, if you start with $100,000 to invest, use $25,000 in stocks, $25,000 in real property, $25,000 in bonds, and put $25,000 in an interest bearing savings account.

How Much Money Should You Invest?

First, let’s take a look at how much money you can currently afford to set aside for this endeavor. Do you have savings that you can use? If so, great! However, you don’t want to cut yourself short when you tie your money up in such a way. What were your savings originally for?

As previously stated, it is important to keep three to six months of living expenses in a readily accessible savings account – don’t use that money except for emergencies! Don’t tie up any money that you may need to lay your hands on in a hurry in the future.

So, begin by determining how much of your savings should remain in your savings account, and how much can be used to invest. Unless you have funds from another source, such as an inheritance that you’ve recently received, this will probably be all that you currently have to invest.

Next, determine how much you can add to your portfolio in the future. If you are employed, you will continue to receive an income, and you can plan to use a portion of that income to build your portfolio over time. Speak with a qualified financial planner to set up a budget and determine how much of your future income you will be able to use.

With the help of a financial planner, you can be sure that you are not investing more than you should – or less than you should in order to reach your financial goals.

For many types, a certain initial dollar amount will be required. Hopefully, you’ve done your research, and you have found an investment that will prove to be sound. If this is the case, you probably already know what the required initial amount is.

If the money that you have made available does not meet the required initial investment, you may have to look at another type of stock.

Never borrow money to invest, and never use money that you have not set aside to do it!

Mistakes to Avoid

For instance, the biggest mistake that you could ever make is to not invest at all, or to put it off until later. Make your money work for you – even if all you can spare is $20 a week!

While not investing at all or putting it off until later are big mistakes, doing it before you are in the financial position to do so is another big mistake. Get your current financial situation in order first.

Get your credit cleaned up, pay off high interest loans and credit cards, and put at least three months of living expenses in savings. Once this is done, you are ready to start letting your money work for you.

Don’t invest to get rich quick. That is too risky and you will more than likely lose. If it was easy, everyone would be doing it! Instead, do it for the long term and have the patience to weather the storms and allow your money to grow. Only invest for the short term when you know you will need the money in a short amount of time, and then stick with what is safe such as certificates of deposit.

Don’t put all of your eggs into one basket. Scatter it around various types of investments for the best returns. Also, don’t move your money around too much. Let it ride. Choose carefully where you put your money, and allow it to grow. Don’t panic if the stock drops a few dollars. If the stock is a stable stock, it will go back up.

A common mistake that a lot of people make is thinking that their investments in collectibles will really pay off. Again, if this were true, everyone would do it. Don’t count on your Coke collection or your book collection to pay for your retirement years! Count on investments made with cold hard cash instead.

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