Investing isn’t just limited to stockbrokers and wealthy businessmen. You don’t need a team of trusted financial advisors and brokers to do it and it most certainly doesn’t require a finance degree. The truth is, everyone should be investing their money in something they have fully researched, evaluated, understand and can monitor. Taking the initiative to increase your wealth and enhance your financial future can feel like more like a timeconsuming challenge to many, but it doesn’t have to. Understanding the basics, will lay the groundwork for creating an investment strategy for your future. So, how do you know what to invest in? How do you even get started?
1. Stocks aren’t the only option.
It’s a common misconception to assume that the only way to really make a high return on your investment is by buying and selling stocks. You can most definitely make a fortune (or lose it), but unless you feel comfortable with risk and understand how the markets work, this option may not be for you. There are many different types of stocks and not all stocks behave as planned. The problem is, they are highly volatile and affected by numerous factors including news, company earnings, the economy, etc. This is why you can either make great returns, or significant losses. However, this doesn’t mean you can’t find an investment option that yields high returns elsewhere. Investing in other markets, such as real estate, can also promise significant returns, without having to monitor your investment habitually.
2. Determine your maximum risk level.
Not everyone is comfortable with high risk investments. In order to determine what you should invest in, you must first know how much risk you’re willing to take. In other words, how much are you willing to lose? Honestly, no one invests in hopes of losing money, but it does happen. It is part of the game. Some aggressive investors take a chance on high risk, expecting to earn higher than average returns. Others are more conservative and prefer to invest in low risk products that will yield lower returns, but provide a certain peace of mind. The point is, If you take on more risk than you feel comfortable with, you may make a wrong move in fear of losing money. Understanding your comfort level will help you make strategic investment decisions that will build your wealth over time.
3. Plan. Research. Assess. Strategize.
The worst thing you could do as an investor, is not have a plan. Without drafting a strategy to help you reach your financial goals, you’ll have no motive behind your investments. The problem is that you may be aimlessly investing your money in places that aren’t going to take you where you want to be financially. When you create a plan of action for your investments, you’re understanding where you need to be, in a specific period of time. Doing so, will help you narrow down the numerous options that won’t take you there, so you can focus on those that will help you materialize your financial goals.
4. Invest in what you know.
What do you spend your time reading and talking about? Is it sports? The company you work for? You’re favorite brand? You’re more likely to be successful investing in areas you understand best, than those you have no connection with. Anyone can keep up with public information such as earnings reports, but if you have extensive knowledge, or experience in the industry you’re investing in, you’ll have an upper hand managing your investment. Peter Lynch, stressed this principle throughout his career with Fidelity Magellan Fund extensively. Successful investors know exactly what they’re investing in and won’t invest in companies they don’t comprehend. They know the market, the business and the product. Down to the details. If you don’t know precisely what it is you’re investing in, you simply shouldn’t invest until you do.
5. When in doubt, look for low risk options.
Investing isn’t rocket science, but it does involve having a general understanding of what it is you’re doing with your money, how often you monitor it, industry knowledge, economic conditions and other factors that affect returns. If you feel intimidated by the many investment products available today, a good way to get started is by researching low risk options. Building the experience you need to become a successful investor, requires time and patience. Looking into options such as bonds, money market accounts, real estate limited partnerships, crowdfunding and other low risk investment products can help you get started.