Five Key Points to Consider Before Investing

Financial Fitness

Before you start saving money and putting it in an investment account check your finances. Doing a fitness check of your finances allows you to see what needs to be paid off before you start saving money. For example, it doesn’t make sense to invest your money if you haven’t paid off your credit card balances. You know you are ready to invest when your savings account totals up to be three to six months of living expenses, then you can start having fun with the stock market!

Risk Tolerance

Remember that different types of investments have different levels of risk. Having a savings account is a low risk but it also has a low rate of return. If you plan on diving into the mutual funds, know the risk level. Mutual funds spread the risk because multiple companies make up the mutual fund’s portfolio. If you plan on investing in individual companies, the risk is high, but you can be rewarded handsomely. At the end of the day, the risk will always be there. Choose the level of risk you can tolerate.

Goals

It is important to determine your goals before you start investing. Ask yourself why do I want to invest? How much do I plan on investing each month? What do I want my investment portfolio total to be at the end of one year, two years, even 10 years? Consider that your life does change and so will your goals. Your goals now will be different 10 years from now.

Diversification

Do you know the saying “don’t put all your eggs in one basket”? It applies to investment strategies. Do not put all your money in one investment. That one investment could tank and then what are you left with? Having a diverse portfolio allows you to have multiple sources on income.

Time and Knowledge

Take your time. Know what you are investing in. Learning about different investments takes time. If you do not have the time or patience, consider hiring a financial planner or adviser. Financial planners are paid on commission based on what you invest in. Remember, investing is a marathon so pace yourself.

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