When we have the extra money, most of us deposit it in a savings account that we can withdraw anytime for our immediate needs. If you are looking towards attaining your long-term goals such as retirement or saving for your child’s college education, it’s better to invest where your money earns more than the interest earned in a savings account. Although it can be riskier, such investments can give you higher returns than a savings account.
Consider these 6 tips before investing:
- Investing is not an easy task. We need to make sure that there is less risk involved so that it won’t turn out to be a bad investment. As we all know, the value of money may be worth less over time due to inflation. An awareness of the inflation is essential as it indicates the rate at which the real value of your investment is eroded and the loss in spending power over time. So, how much of a return or % of your investment is needed to maintain the projected value over time amidst inflation?
- Avoid promises of instant wealth on your investments. These are red flags or warnings of fraud. Before making any investments, research on the company you are investing. Check with independent and unbiased sources such as the SEC. Don’t ever invest your entire lifetime savings or your retirement money just because you were promised high yields within a certain time frame. It may turn out to be an investment scam and all your money goes down the drain. Scammers will stop selling to you once you ask too many questions. They will know if they can fool you or not.
- Invest the money that you don’t need immediately. Be prepared to invest for at least 5 years to allow more time to stabilize on your gains or earnings or to manage your risks better. If you need the money in a year, it is more secure to put your money in a time deposit account, high-interest savings account or Certificates of Deposits (CD). You could try to invest in short-term bond funds, a credit union or Lending Club if you plan to withdraw the money within 2-3 years. For long term investment of 5-10 years, the stock market is the best place to invest.
- All investments involve risks, so be prepared to handle some losses. Your loss will only be temporary, but with proper planning and sound judgment, you can easily recover from it over a reasonable period of time. Always understand the program before you invest to avoid costly losses.
- The general rule applies; the higher the risk of your investment, the higher potential for high returns. If you are the type who can risk losing money for a greater possibility of more yields on your investments, try growth stocks. If you are the conservative type, you can choose the more relatively safe bonds.
- Consider a mix of investments. As the saying goes, don’t put all your eggs in one basket. It is best to diversify your investments to protect against significant losses. Let’s say, if one asset category’s return of investment falls, you can counteract your losses with better returns on your other asset categories. To truly diversify, invest in a variety of asset classes such as bonds, stocks, treasuries or gold.
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