|
Before
you invest your money, define your objectives. Do you want long term investment growth or do you need current income? Do you
need a bit of both? Do you want to preserve your principal even if it means accepting lower returns? If you are willing to
take some risk, how much are you willing to lose?
No one sets out to loose money when investing, but if you are
choosing business, real estate, or securities (stocks, bonds, mutual funds) there are risks involved. How can you reduce these
risks?
Diversify your investments. Spreading your money over many different investments and in several different
economic sectors can help decrease some risk.
Keep your portfolio balanced among your different investments. Rebalancing
can help you sell when prices are up and buy when prices are down.
Dollar cost average. Adding (or removing) money
at regular intervals helps minimize consistently buying at high prices or selling at low prices.
Unless you are
investing for entertainment, don’t plan on investing for a short period of time. If you choose to speculate, limit the
amount of money with which you will gamble. All financial markets are cyclical and go up and down. But, over longer periods
of time, they usually rise. Looking at investment returns over 10 or 20 years can help you keep things in perspective. Being
willing to hang on to good quality investments during a downturn can help you avoid selling at a loss.
Common sense
is your best guide for choosing investments wisely. The challenge lies in understanding investment vocabulary and taxation.
Using a financial dictionary can help with the terminology. As for taxation, that is best left to professionals. Tax laws
are continually changing, so paying for a bit of professional help can help prevent very costly taxation errors.
|
If you are investing for retirement, your time horizon is
an important consideration. You will want to invest differently if you will be retiring in fifteen years rather than in six
months. The closer you are to retirement, the more important it is to lower your risk level.
If you have a 401(k)
or other retirement plan available to you, read the literature that came with your enrollment documents. This can be very
educational and help you make prudent investment choices.
Starting to save early for retirement allows you to take
advantage of the time value of money. At 10% annual return, your money doubles every eight years.
If your employer
matches any of your contributions, your money can grow even faster.
To determine how much you should be saving, you
can use a retirement calculator. Many mutual fund companies have these calculators available at their websites.
Another
consideration to retiring comfortably is to manage your debt. The lower your living expenses when you retire, the more secure
you will be. Keeping enough in emergency savings and carrying adequate insurance can help protect your growing nest egg as
well.
|
