The amount of investment information floating in cyberspace and in print media can be overwhelming. Friends and family may tell you one thing, but you may think something else. If you follow a few simple guidelines, keep yourself informed and make occasional adjustments to your portfolio, your investment should assist you to meet your financial goals.
Make Investments Automatic
Plan for a set amount of money to be automatically invested into some type of investment account each month. Brokerage and financial services firms encourage investors to set up automatic investment plans which purchase investments on the same day each month by electronic funds transfers from bank accounts. When investments happen automatically, you're not tempted to drag your feet.
Don't Try to Time the Markets
Even the most seasoned financial professionals can rarely time the market. If you invest regularly and for the long term, you will be in for the ups and well as the downs. You'll benefit from the phenomenon known as dollar cost averaging. In essence, you put in the same number of dollars each month so when markets are high you buy fewer shares, and when they are low you buy more.
The sooner you begin, the less money you need to put away each year to reach the same goal simply because you started early. Earnings also compound over time.
Put Money into Retirement Accounts
Retirement accounts offer significant tax advantages. Some accounts make your initial investment tax-deductible, as is the case with traditional IRAs and 401(ks), with others have you pay taxes now but not when the money is withdrawn in retirement, as in the case of Roth IRAs. Some employers even match the money you contribute yourself.
Sometimes when stocks are up, bonds are down and vice versa. The real estate market often marches to the beat of its own drum. Commodities and interest rates can be unpredictable. Putting a little here and a little there will help prevent you from losing too much if one sector goes down while others remain stable or rise. You can also invest in overseas markets, which often don't walk in step with American markets.
Know Your Risk Tolerance
You need to understand your own level for risk tolerance. If you can stomach potential losses, then riskier investments may be suitable for you. If losing a few dollars makes you lose sleep, you'll be better off in stable investments, knowing that those also don't bring as many opportunities for big rewards.
Read up on your investments. Seek out reputable print, radio, television and online sources and keep up on market trends and the worldwide economy. It is critical that you understand what you're doing with your hard-earned money.
Be Cautious of Commissions
Don't let professional advisers bully you. If the adviser urges you to purchase investments that pay him high commissions, you should question the wisdom of those investments. Some financial professionals are notorious for suggesting products which pay big commissions to the sellers but are often not the best investment for the buyer.
Review Your Portfolio
A good portfolio today might not bet the best portfolio tomorrow. It is important to periodically review your investment mix. The economic climate shifts from time to time, and your need for the money changes, too.
Be Aware of Time Horizons
Reserve your riskiest investments for the part of your portfolio you are holding for the long term, like retirement accounts. Money needed soon for a big purchase or life altering event is best left in cash equivalents.
- USA Today: Automatic Investment Plans Make Saving Easier
- CNN Money: Can You Outsmart the Market?
- Wall Street Journal: Dollar Cost Averaging Through the Downturn
- Bankrate: Investment Thoughts for a Young Person
- U.S. Department of Labor: Types of Retirement Plans
- Morningstar: Course 301-Why Diversify?
Annabella Gualdoni has written newsletters and reports for corporations and nonprofits since 1994. She is a real estate professional and also teaches subjects including international cooking and travel, dating/relationships and personal finance. Gualdoni has a Bachelor of Arts in international development from University of California, Berkeley, a Master of Arts in international relations from Boston University, and a Juris Doctor from Boston College Law School.