Are you on the road towards getting your finances in order? That’s quite an achievement already because a lot of people do not even realize that they have to overhaul their finances. When you are at the point that you’re considering how to make investments that means that you have made good progress. But your work is not done yet. You cannot take things easy just yet. You have to be careful with the way that you pick your investment choices so you do not lose most of your hard-earned money.
The Most Important Rule
When it comes to investing, there is one very important rule that you need to keep in mind. That rule is you should not invest money that you will not be able to afford to lose. This places an emphasis on one quality of investment that you should never forget. Investment involves risk. If you are not ready for some risks then investment is not for you, because those two go together.
To understand this rule you need to know the difference between saving and investing. Saving is when you set aside money that you can access right away within short notice. Investing is putting your money so that it would start earning for you. If you keep that rule in mind then you would save yourself from the trouble of having to worry about not having anything left for your retirement. There are times when following this rule might be a bit hard. That would be true when you are sure that your investment choice will actually payoff. During those moments, the tendency for most new investors would be to put in as much money as they can, hoping that the payoff would be enough to make it worthwhile.
A good investor knows when to take risks and when to play it safe. Take the time to study your investment moves before you make any and keep the most important rule in mind all the time.
Before You Buy Your First Investment
Before you make an actual investment move, it is important to remember a few key concepts about it. These ideas will guide you in making future moves about your investments.
Your Investment Can Earn More than Your Work
This is probably hard to accept for someone who was raised in a middle class setting where finding a good job has always been a key life move. But this is the reality. If you are careful and you pick your investments carefully, then it should be able to earn more than what you can earn from any kind of work that you do.
Fit Your Investments to Match What You Know
What is it that you are passionate about? Are you into technology? Do you like real estate? You can actually make your investment choices fit the type of personality and interest that you have. If you like the idea of investing in real estate and you know a lot about it then do your research to get into that sort of investment. There is nothing wrong when you do that. What does not make sense is when you listen to the latest trend and put your money into things that you have no idea about. Why invest in something that you know next to nothing about just because some “expert” said that it is the next best thing in finance?
Control the Costs of Investments
Investments will cost you. Usually those costs would come in the form of fees. You have to be aware of the cost of each transaction that you make. While the amount of the fees might seem trivial, once you add them all up they would turn out to be a substantial amount.
If You Don’t Understand Then Don’t Do It
You hear financial experts expounding how the market would turn out and how the economy would turn out. But if you count the times that their predictions turned out to be accurate you would be surprised by how they were wrong for most of the time. That’s because finance isn’t really an exact science. You have to apply that to personal finance and to your investments. Sometimes you also have to go by your instinct. If you don’t feel comfortable about an investment move that you are being told to take then don’t do it. It’s better to go by your instinct in such cases.
Documents Are Important
You need to keep a paper trail of all your investment moves. That means keeping all of the documents that are connected to it. Just in case that you get victimized by a scam or some other problem with your investment turns up, then the documents can be used as evidence. The more documents that you have, the better it would be later on in case it turns out that you need it.
Report it Right Away
The moment that you feel that something is fishy with your investment, report it immediately to the authorities. If it turns out to be a false alarm then no problem. But if there is really something wrong with it then the sooner that the authorities get a wind of what is happening, the higher the chances that investors, including you can recover their money.
A Good Rate for Return of Investments
One reason why new investors lose money is because they have the wrong ideas about investments. In particular they have the wrong ideas about what kind of returns they should be expecting. Many investors are blinded by the idea that some investments can make them millionaires overnight. That kind of scenario can happen. But the opposite is also a possibility where an investor could lose all of his/her money in one day. Don’t be fooled by investments that claim to give you returns that are high. You need to do some research in order to establish that it really is legitimate. If you feel that the returns promised are too good to be true that should make you suspicious. Different types of assets would have different types of returns.
Gold has not appreciated in value by a great deal for a long time. The good thing about gold is that it maintains it purchasing power over a long period. So if you want to keep your money stable then gold can be a great choice, but remember that it won’t earn much for you.
Cash or the physical money that you handle on an everyday basis is meant to depreciate in value over time. Keeping cash stored over long periods will mean that it will lose much of its value before you can use it.
Bonds are some of the best long term investments that you can get. You can get returns that range from 2% to 4% with good bonds after normal inflation. If you choose riskier bonds then you can expect higher returns.
Stocks and Real Estate
Good stocks tend to have a return of around 7% after inflation. The same thing is true for real estate. Those are the returns that you should expect from a good investment and anything more than that would be riskier than normal.