If you’re going to invest your money in the stock market, then you need to make sure that you’re doing it right. Since there are plenty of opportunities to lose money if you’re not careful, it’s imperative that you learn the basics of investing before jumping in headfirst.
This guide on how to invest money covers the most important aspects of investments and will give you the knowledge you need to avoid making costly mistakes while still maximizing your returns on investment.
1) Save before you invest
It’s tempting to run out and invest in a hot stock as soon as you have money. However, if you don’t save some money in a savings account before doing so, your investment can come at too high of a price.
Before investing your money, it’s important to build up an emergency fund of 3-6 months worth of living expenses.
2) Have an investment plan
The most important thing you can do to safeguard your financial future is to have a solid plan in place. According to a 2011 Fidelity Investments survey, 21% of households have not reviewed their investment portfolio or their financial plan in more than five years, and 48% haven’t set aside enough money for retirement.
3) Watch your fees
Know what you’re investing in, and make sure you understand all of your costs. Are you paying a management fee? What about transaction fees? How about taxes on gains? All these factors can dramatically impact your returns.
Knowing what’s included in your investment is critical to making informed decisions and avoiding unexpected fees.
4) Don’t be greedy
When it comes to investing money, don’t be greedy. Be cautious about taking too much risk with your investments. Too much greed can hurt you in many ways, but at its core, greed pushes people to invest in risky instruments and products that are overvalued.
This is not what you want to do when trying to invest money safely. Although investing smartly does mean taking a little bit of risk, it doesn’t mean risking your entire portfolio for a potential short-term gain.
5) Consider your age
If you’re young, you have a lot of time to learn and grow. This means you can take more risks with your money, even though it’s still a good idea to put some aside for emergencies or investments that offer long-term growth. If you’re older and close to retirement age, you may want to opt for a safer investment that won’t fluctuate as much.