7 Basic Things You Should Know Before INVESTING
WHEN it comes to investing in the stock market, past behavior won’t always predict the future. Looking at what the markets have done isn’t a reliable way to predict what they will do. No one can reliably predict the market. While professionals can make educated guesses, predicting the market is like predicting the future, no one can do it, so don’t bother trying. Thanks to Kathleen Elkins of Business Insider for providing these practical investment tips, we at Wealth Mentors would like to highlight 7 basic things you should know before investing.
1.You don’t have to be an expert
You don’t have to go at it alone when it comes to investing: There are financial planners, wealth advisers to guide you. There is also a wealth of information out there if you want to be a more hands-on investor. Check out our courses that cover investing basics, strategies, and tips.
2. Starting early is a major advantage
Your biggest asset is time, especially if you are in your 20s. For nearly every type of investing — including retirement savings — nothing can make up for the effect of compound interest. Plus, if you lose money in the market, you’ll have more time to make it back before you need it.
That said, it’s never too late to start investing, and there is no good excuse to keep your money under the mattress. It’s still better to start late than never — as long as you aren’t tempted to take unnecessarily high risks to make up for lost time. As in every other aspect of personal finance, you don’t want to rely on investing to “get rich quick.
3. Know your goal
Do you know what you are investing for? What’s your purpose, goal and objective? CEO of iQuantifi Tom White, a provider of automated, personalized financial plans, said “Start at the end. Know exactly what the goal of your investing is.” Once you have your objective established — the time frame becomes clear, and you’ll be able to figure out how to invest your money, whether saving for a home, your kids’ education, a vacation, or retirement.
4. Invest differently depending on how much time you have
Your time horizon is the number of years between now and when you’ll need to use the money you’re investing. It should become evident after you establish your goal. Once you have a time horizon established, you’ll have a better idea of where to put your money and form a strategy. Generally, the more time you have until you need the money, the more risk you can take. That way, if something goes wrong, you have time to recoup those losses. In general, there are three types of asset classes in investing: cash, bonds, and equities (stocks). And each of these three types have their own ranges of rates of return that you can more or less expect over a period of time. Understanding these rates of return will help you determine how to invest.
5. Putting all of your money in one place is asking for trouble
It is important to diversify your investments. Note that no matter what your timeframe, you’ll want to maintain a properly diversified portfolio of investments. Diversification means spreading your money out among different kinds of investments. While there are many opinions out there about how diversified an investment portfolio should be, almost everyone agrees that putting all of your financial eggs in one basket is a recipe for disaster.
6. It gets emotional
When it comes to money, our choices are often clouded by fear, greed, and nervousness. These emotions tempt us to constantly shift our investments around —and can ultimately wreck even the most sound investment portfolio. Contrary to your basic instinct, the best things you can do for your investments is leave them alone. Avoid impulsively selling an under performing investment and stay the course with a diversified portfolio that is able to withstand short-term rises and dips in the market, is the way to do.
7. Never ‘set and forget’ your investments forever
Life happens, and there are times — particularly big life changes — when it’s smart to make financial adjustments. As your money grows, and as you get closer to the end of your time horizon, the original portfolio that you created may no longer suit your needs. Adjusting it to fit your current situation is called rebalancing, and Investopedia explains it nicely: Rebalancing is the process of realigning the weightings of one’s portfolio of assets, periodically buying or selling assets in your portfolio to maintain your original desired level of asset allocation.
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