You saved some money during the past years and put it in one or more bank accounts that pay little if any interest. If you want to achieve important financial goals such as owning a home, helping your kids through college or retiring comfortably, with the profits of these interests you may never reach your goals. There is a better way to make extra money, by investing. However, you must know how to invest well.
As a beginning investor, you do better avoid some very common mistakes.
Here are 5 tips you need to know to get started:
1. Knowledge
Can you tell a good investment from a bad one? The world of investing has its own language. If you want to understand this language, you have to spend some time to study it. You need at least a basic financial education. Knowledge is your primary keystone to successful investing.
2. How much you can invest
You cannot invest if you do not have any money. For most people like you and me, who have to work for our money, we have to save it first. You cannot have too much debt either. Pay off your debts first. Then you wait until you have money to spend you can afford not to touch for at least several years. If you are saving to buy a house or a car in the near future, do not use that money to invest. You have to ask yourself can I afford to lose it.
3. You need to know about risk and returns
When you buy stocks, bonds or other investments, you have to know what a reasonable return is. How much risk do you take? It is very important to take small risks in order to protect the money for which you worked so hard.
4. Will you suffer from losses?
In general, people do not like to take losses when they invest their hard-earned savings. This is the reason why they react in a contrary way when the stock markets are turbulent and their portfolio contains losing positions. They sell their winners and hang on to their losing shares. Can you take one or more losses?
5. Diversification
If you want your portfolio to advance, you have to find the right balance between low-volatility and high-volatility assets. As the saying goes, don 't put all your eggs in one basket. The intelligent way to do things is asset allocation. It is relatively unexciting, but in the long term gives you better results.
Good investment is boring, but it is fun if you take only a small percentage of your portfolio and go for some exciting trading. Always keep the other percentage of your portfolio broadly allocated over low risk assets.
As a beginning investor, you do better avoid some very common mistakes.
Here are 5 tips you need to know to get started:
1. Knowledge
Can you tell a good investment from a bad one? The world of investing has its own language. If you want to understand this language, you have to spend some time to study it. You need at least a basic financial education. Knowledge is your primary keystone to successful investing.
2. How much you can invest
You cannot invest if you do not have any money. For most people like you and me, who have to work for our money, we have to save it first. You cannot have too much debt either. Pay off your debts first. Then you wait until you have money to spend you can afford not to touch for at least several years. If you are saving to buy a house or a car in the near future, do not use that money to invest. You have to ask yourself can I afford to lose it.
3. You need to know about risk and returns
When you buy stocks, bonds or other investments, you have to know what a reasonable return is. How much risk do you take? It is very important to take small risks in order to protect the money for which you worked so hard.
4. Will you suffer from losses?
In general, people do not like to take losses when they invest their hard-earned savings. This is the reason why they react in a contrary way when the stock markets are turbulent and their portfolio contains losing positions. They sell their winners and hang on to their losing shares. Can you take one or more losses?
5. Diversification
If you want your portfolio to advance, you have to find the right balance between low-volatility and high-volatility assets. As the saying goes, don 't put all your eggs in one basket. The intelligent way to do things is asset allocation. It is relatively unexciting, but in the long term gives you better results.
Good investment is boring, but it is fun if you take only a small percentage of your portfolio and go for some exciting trading. Always keep the other percentage of your portfolio broadly allocated over low risk assets.
No comments:
Post a Comment