If you’re a newbie to the world of investing, you’ll need to learn a few essential investor facts of life before taking the plunge.
There are a multitude of ways to invest your money: You can buy small amounts here and there, straightforward and simple, or you can go cutting edge and complicated. Do you go with what’s trending or do you go against the grain?
However you decide to proceed, you’ll need to consider a few points as you’re working your way through the world of investing.
Know where the money is coming from
The money you’re planning to invest should be money you have saved specifically for this purpose. Your investment money needs to be a completely different bundle from your emergency fund and the money you need to cover your monthly bills and living expenses. Consider how losing most or all of your investment money will affect your life.
When to start investing
Before you start investing your money, think about what you want it to do for you. If your plan is to invest for the short term, to draw the money out in a few years to build your dream home, then you need to consider that when you’re investing.
If you’re in it for the long-haul and are certain you won’t be pulling your funds out, you may be able to deal with the normal volatility of the markets. Study some investing guides to learn how to use market behavior to your advantage.
History doesn’t always repeat itself
There was a time when everyone thought real estate was a solid, safe investment that would always appreciate. Then the real estate bubble burst. Now we know differently: even United States Treasuries, considered the gold standard of safe investing, have become risky in response to questionable governmental decisions.
Before you put your money on the line, learn how the markets work, what influences them and how to spot trending investment opportunities. Make it a point to digest as many investment educational resources as you can.
Understand the lingo
You can’t expect to make a sound decision on investing in stocks versus bonds if you don’t know the difference between a stock and a bond. Do you understand the difference between a bond investment and a bond fund? If not, you need to get familiar with these terms before you start investing.
You need to know what comprises your investment, how it will be managed and who will be doing that. You’ll want to know what impacts the investment’s volatility and value of your investment.
Diversification is our friend
It is just a smart move to buy into multiple investments or a fund with a diversified portfolio. Since all your investments in a diversified portfolio won’t be moving in the same direction all the time, your investments will be more balanced overall. This is a way for you to become accustomed to seeing your money go up and down, which is going to happen. Learn this, and you’re well on your way to understanding the world of investing.