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The stock market can be exciting, rewarding, and profitable—but only if you know what you’re doing. With so many investments to choose from, so many factors to consider, and so much jargon to learn, the process of investing can seem overwhelming even to experienced investors. If you’re interested in investing, but don’t know where to begin, the information in this article will help you get started.
6 Ways to Invest Wisely
Investing your money can be exciting and potentially lucrative, but it can also feel like you’re entering uncharted territory if you’ve never done it before. Here are a few tips to help you get started with investing, whether you plan to dabble in the stock market or get into real estate.
1. Be Honest About What Is Driving Your Investment
Whenever you consider investing in a new business or company, take a step back and analyze your motivations and what you expect to get out of it. The fundamental question you should ask yourself before choosing an investment is: are you looking to invest in something because it aligns with your long-term financial goals? Or is there some other incentive that’s driving your investment? Not all investments are created equal so be honest about what motivates you.
2. Understand the Relationship Between Risk and Return
Though no one can predict exactly how much money a particular investment will make, there are several things you can do to gauge how risky it is. Understanding these aspects of investment can help you plan your future accordingly. For example, if you’re close to retirement and want a reliable source of income that won’t fluctuate as much, look for investments with low volatility and low risk (and thus low returns).
If you’re in your 20s or 30s and have plenty of time before retirement, take more risks as you’ll need bigger growth over time to meet your goal. If you’re young but don’t have a lot of money to invest at once, find investments with higher risk (but potentially higher returns) so that each dollar goes further.
3. Stay Updated With Economic News
Even if you’re not an economic expert, it doesn’t hurt to read up on general financial news. By understanding what drives changes in GDP, interest rates, and other indicators of global financial health, you’ll be able to make better-informed decisions about where and how your portfolio is allocated. Whether you choose to invest in real estate or consider investing in cryptocurrency, even a small amount of research can go a long way towards protecting your assets and growing your returns.
4. Pay Attention to Fees
Any time you invest, you should be looking at fees. The more money an investment makes and the costs to get in and out of it can make a huge difference over your lifetime. Consider working with a fee-only fiduciary financial planner if you don’t trust yourself with investing on your own or you aren’t familiar with financial products. You will want to make sure there are not tons of hidden fees you don’t know about until you are locked in. This can be stressful because you might not have the money available to cover these hidden fees. It is important to be as upfront as possible in the beginning to try to avoid hidden fees as much as you possibly can. Also, it is best if you try to get your finance contracts in writing so they can’t squeeze in fees later without you realizing it.
5. Consider Your Investment Goals
If you’re investing with a long-term perspective, be sure to understand your goals. For example, a portfolio filled with high-growth stocks is ideal if you’re looking to retire early. If you’re saving up for a house or college tuition, it may be better to focus on more stable investments. Having clear goals will help you make good decisions about where to invest your money. It will also keep you on track for hitting your goals instead of becoming sidetracked with other items.
6. Build a Portfolio That Reflects Your Goals
Your portfolio should be constructed to help you meet your financial goals. If that’s maximizing returns or minimizing risk, understanding what you’re trying to achieve will help make sure your investment strategy is right on target. For example, if you want a steady income stream from dividends and a relatively safe investment profile, a portfolio full of blue-chip stocks probably won’t deliver what you want. Instead, consider investing in dividend-paying stocks from companies with lower price-to-earnings ratios and higher dividend yields—you’ll still get those dividend payments, but also enjoy some growth as well.
Make sure every investment you make is a good one. Do your best to do as much research as possible before committing to an investment. Following this advice will help prepare you for success as an investor in today’s economy.