Investing seems intimidating, but with the right approach, you meet your investment needs with confidence.
Investing without clear goals is like going on a road trip without a destination. Before you put your money anywhere, think about what you want to achieve. Do you want to save for retirement? Pay for a child’s college education? Buy a home within the next 3-5 years? Build an emergency fund? Achieve financial freedom early in life? Outlining specific financial goals will guide your investment strategy and help you track progress. Short-term goals call for conservative investments like high-yield savings accounts. Long-term goals give you more flexibility to invest in the stock market.
Understand your risk tolerance
Risk tolerance refers to how much investment risk you take. An aggressive investor fine riding the ups and downs of the stock market. A conservative investor wants to preserve capital and avoid steep losses. Ask yourself questions like: How would I react if my portfolio lost 10% or more of its value overnight? Would I sell in a panic or stay patient? Do I need guaranteed returns even if they’re low, or am I willing to take risks in pursuit of higher yields? Be honest about your risk tolerance. Choosing investments that don’t align with it will cause you to lose sleep and make emotional (rather than strategic) decisions.
Research your investment options
The world of investing spans both simple and sophisticated territory. On the simpler end, you’ve got savings accounts, CDs, money market funds, bonds, and dividend stocks. On the sophisticated end, you’ve got commodities, derivatives, altcoins, venture capital funds, and complex real estate deals. Get clear on what you understand before moving forward. Aim to educate yourself on terminology, asset classes, investment products, markets, trading strategies, and more. If you start feeling in over your head, it is wise to work with a financial advisor like fisher capital beverly hills to evaluate options and explain them to you.
Diversify your portfolio
Different asset classes, market sectors, and securities perform differently depending on economic conditions. For example, when stock prices decline, gold prices often rise. Investing in both stocks and commodities allows you to minimize overall risk. Some smart ways to diversify include:
- Purchasing index funds that represent the whole stock market
- Building a portfolio with domestic and international holdings
- Adding bonds to an all-stock portfolio
- Investing across industry sectors
- Including alternative assets like private equity, currencies, or real estate
A diversified portfolio, tailored to your goals and risk tolerance, helps you invest with confidence knowing your eggs are distributed safely across many baskets.
Invest regularly no matter what
It tempting to stop or start investing based on market conditions, but timing the market rarely works in practice. A better strategy is to invest at regular intervals over time, like contributing to a 401k with every paycheck. Regular investing takes advantage of dollar-cost averaging – allowing you to automatically buy more shares when prices are low and fewer when they’re high. Over long periods, this helps smooth out volatility. Maintain your investment strategy through market fluctuations. Your future self will appreciate it.