Investing has been a popular source of income nowadays. And
with the continuous emergence of online brokerage firms, it has only grown in
popularity. Precautions should still be taken to ensure that you'll be making safe investments and not getting yourself in trouble.
You should still consider all your options carefully before
you take on investing, and make sure that you’re not just in it to be “in”. You
need to be well-versed about every little thing that might affect your
investment journey in any way so that you can keep yourself and your
investments away from any harm.
We’ll now be giving you four steps you should take to ensure
that you can begin investing safely.
1.
Determine Your
Needs and Goals
When you consider taking on investing, you should also think
about how liquid your money needs to be, or how quickly you should be able to
access it. You should think about the likeliness of you having to withdraw your
money from the investment. There are investments that have considerably higher
liquidity than others. An example of this will be savings accounts, which are
easier to convert to cash when compared to others. Bonds on the other hand are
usually offered with a fixed term.
Additionally, you need to determine what your goal is. Why did
you decide to invest? Do you simply wish to have another source of income? Is it
to fund your retirement? Do you need to save up for a vacation? Or is it to pay
for your child’s education? Different people have different reasons for
investing. Identifying what your goal or goals are can help you determine your
risk tolerance, since the information can tell you the amount of time you’ll be
spending in investing.
You should examine your financial situation carefully before
making any final decisions.
2.
Measure Your Risk
Tolerance
Knowing your goals as well as how long you’ll be investing
your money can help you determine your risk tolerance. This reflects the amount
of investment money you’re comfortable losing in case an investment failed.
Usually, younger investors that have a considerably longer
timeline can be more aggressive when investing. Investing in stocks while you’re
young can be good since it offers more potential for growth over time compared
to investment-grade bonds which gives lower returns. You should still note that
despite having better returns, investing in stocks also have greater risks
compared to the low-return investments.
This typically shows that the lower the risk, the lower the
annual rate of return. If you have low risk tolerance, it’s advisable for you
to look at low-risk investments; but if it’s higher, you should look into more
high-yield investments. Keep in mind that regardless of your risk tolerance, diversifying your portfolio still offers the best route for moderating your risk.
3.
Do Your Research:
Consider the Different Instruments Available
Are you eager to learn what investment you should put your
money on? Then you should do your homework. You should do some research about
the various instruments you can choose from and learn more about how they
perform, the minimum investment required, and all the other important details
you need to know before making a decision.
There are also data available online about the different
assets you might be interested in. You can find out how each investment
performed last year, over the past five or ten years. You could buy shares in
the company or companies that you think will provide good returns. For
diversification, you can consider investing in mutual funds since buying into a mutual fund means that you’re investing in a number
of companies at one time. Index funds are also good for diversifying your portfolio since it was set to
mirror the overall performance trends of the stock market.
Your needs, goals and risk tolerance can then be used to
help you determine what the perfect investment is for you.
4.
Know the Fees You’ll
Pay
Your fees can come from different directions once you enter
the investing world. Banks, brokerages, and mutual funds can charge fees that
can eat away at your investment income little by little. It can result to a considerably
large amount if neglected for a long period of time.
You should make sure that you have all the fees figured out
before signing anything.
Conclusion
Investing is not something that should be taken lightly. Remember
that being a well-informed investor should be one of your priorities before
entering the field. There are brokerage firms that offer demo accounts; you can
use a demo account to experience real-life trading without the risk of losing
your money.
Test your skills in stock trading at FSMSmart! We will
provide you with daily
market updates and help you stay up-to-date with economic
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