Three things to consider before investing
The investing world can be a bloodcurdling place, and those days when brokers did your selling and buying have mostly gone like those eight-track cassettes. Real estate investing is now a DIY operation that has many pitfalls and dangers for the unwary. And before you even plan of sticking your big toe into the investing pool; be sure that you have considered these three things.
Know what you want to buy
Your investing success rests squarely on your current understanding of what you are buying. Know what you are paying for, whether it is an individual bond or stock, a mutual fund, or perhaps a CD. You wouldn’t buy an orange without being sure it was not rotten; you shouldn't assume that all security efforts the so-called gurus are touting is as firm as Fort Knox.
Understand and be able to manage the risks
Always do your own research and make an informed decision. When you move beyond mutual fund money market accounts, certificates of deposit, and bank savings accounts you move into a world of ever-increasing risks. Whether you put your money in mutual funds (which are essentially pools of individual securities) or in individual securities, the securities price can rise or fall. That’s the risk.
Risk is always inherent in the investment community. Whether you buy tiny pieces of a company (equities, or stocks) and/or government’s money (debt instruments, or bonds), your money is only as safe as the business you’ve tied it to. Almost all investments are also affected by the overall economic situations both in the U.S. and the rest of the world. Put differently, if people can’t even contemplate that their savings may be worth less tomorrow than they are today, you may consider plunging your cash into the junk bonds fund. (They are loans to businesses that Wall Street brokers have serious doubts about, so they are considered very risky.)
Alternatively, you may want to reconsider a mutual fund that buys nothing but notes and U.S. Treasury bonds (a really safe investment). If you have investments that are keeping you wide awake in the middle of the night, there is no crime in selling them, whether at a loss or a profit. Even if you can’t sell a security at its peak, you never need to apologize for making a little profit. Likewise, if your investments are leaking value, remember that it isn’t a sinking ship and you are not the captain. So just jump overboard and surely you can live to invest in better days.
Balance expectations and risks against future monetary needs
Not all great investments are right for you. If you wish to gamble on small companies which can be the next IBM or Microsoft, you need all the time it takes to allow the company to grow and prosper. You may need to be very patient; many startup companies go under and struggle at first, and the big returns, if they do prosper, come about eventually.
If you will need to make those next tuition payments within the next 5 years, you may need to temper your level of risks by keeping a bigger portion of the savings in cash or other cash equivalents such as certificates of deposit or money market funds. If you want, you can invest your child’s college savings funds and if you do, you should allocate only a smaller portion of your savings in it and put most of your money in safer ventures.
tags: investing
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