Once you become financially stable, you may want to start experimenting with investments. Putting away a little extra money every month is a great way to build up a nest-egg, but investing that money is the only way you'll be able to truly acquire wealth.
As a beginner, the process can seem a little overwhelming. Do you invest in life insurance or EFTs? Should you pick some stocks, or go with mutual funds? It's easy to get caught up in the specifics, but make sure you look at the big picture. These eight simple tips will help guide you in the right direction, simplifying your decisions.
1. Start Early
Never doubt the power of compound returns. In the short-term, your small monthly contribution may seem insignificant. But over the years you can see this money multiply before your eyes. You'll have the opportunity to develop an investment strategy. By the time you're ready to increase your contributions, you'll already know what to do.
2. Consider Alternatives
Anyone can walk down to their local bank and purchase the first mutual fund their investor recommends to them. If you're willing to look for them, there are plenty of lesser-known investment opportunities with their own unique benefits.
For example, many newly-established Real Estate Investment Trusts offer priority shares to early investors. These priority shares often produce higher than average returns, leveling out over time. If you want big returns, you can't always choose the popular option. Instead, you've got to search for the hidden gems.
3. Balance Risk
The best time to take risks is when you're young. When you're working with a six-figure balance that you've spent your entire life saving up, you're certainly not going to want to put it all into a risky fund.
But when you're just starting out, you've got both time and resources on your side. Taking some risks with 10 to 20 percent of your investments has the potential to produce significant returns, and won't financially ruin you if things don't work out.
4. Think Forward
Investments never move upwards in a slow and steady manner. It's important not to react to short-term events. The market crash in 2008 was one of the biggest financial disasters in recent history. Just a few years later, the market had completely recovered. Short term losses are an unavoidable aspect of investing. Stay focused on your future to avoid making rash decisions.
As a whole, the market tends to follow a general upward trend. This cannot be said for individual industries and companies. Oil, for example, produced incredible returns for upwards of 20 years. Today, the market is barely surviving. This is why you'll want to spread your investments across many different industries. Individual assets may have a lot of risk and volatility, but as a whole, your diversified portfolio can remain stable.
6. Sell Losers
You don't want to hold on to an asset that has consistently performed poorly. After telling you to ride out short-term losses, this may seem contradictory. But knowing when to sell off an asset is an art of its own.
Think back to when you first chose this investment. Why did you buy it? What changed? Does this affect your purchasing decision? A little market knowledge can help you answer these questions, and decide when the right time to sell is.
7. Maintain Perspective
At some point, you'll be lucky enough to pick an investment that exceeds all of your expectations. Big wins like this can be addictive. You might be inclined to choose riskier investments, hoping for the chance at another lucky break.
Keep your financial goals in perspective, and continue to operate within your established risk portfolio. Good years can compensate for disappointing ones, keeping you headed in the direction you've planned.
8. Take Charge
When you're first getting started, taking professional advice is a great way to establish a foundation. You should still take an active role in your future. Instead of relying on someone else to make all of your decisions for you, research your investments and try making your own decisions. When you're experienced enough to control your own portfolio, you'll be more equipped to meet your financial goals.