You saved some money through the past years and put it in a number of bank accounts that pay small if any interest. In order to accomplish significant financial goals such as owning a home, supporting your kids through college or retiring comfortably, with the profits of these interests you may never accomplish your goals. There exists a better way to make extra cash, by investing. However, you must know how to invest well.
As a beginning investor, you do better avoid some very common mistakes.
Here are 5 tips you should know to get started:
Can you tell a good investment from a bad one? The world of investing has its own language. If you wish to understand this language, you must spend some time to study it. You need to have at least a basic financial education. Knowledge is your primary keystone to successful investing.
2. How much you can invest
You cannot invest unless you have any money. For most of us like me and you, who have to work for our dollars, we have to save it first. You can’t have too much debt either. Pay the balance of your debts first. Then you wait until you have the cash to spend you can afford not to touch for around several years. If you are saving to buy a house or a car in the near future, don’t use that cash to invest. You need to ask yourself can I afford to lose it.
3. You need to know about risk and returns
If you buy stocks, bonds or other investments, you should know what a reasonable return is. How much risk do you take? It is crucial to take small risks in order to protect the money for which you worked so hard.
4. Will you suffer from losses?
In general, people do not like to take losses when they invest their hard-earned savings. Because of this, why they react in a contrary way when the stock markets are turbulent and their portfolio contains losing positions. They sell their winners and hang on to their losing shares. Can you take more than one losses?
If you want your portfolio to advance, you have to find the right balance between low-volatility and high-volatility assets. As the saying goes, don’t put all your eggs in one basket. The intelligent method of doing things is asset allocation. It is relatively unexciting, but in the long term gives you better results.
A good investment is boring, but it is fun for only a small percentage of the portfolio and prefers some exciting trading. Always maintain the other percentage of your portfolio broadly allocated over low-risk assets.
George Howell is an investor and trader with over many years of experience.
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