If you truly want to create lasting wealth, investing is the way to go. Unfortunately, even parents and schools that are good about teaching skills for personal finance often don’t show you how to do this. No matter if you’re investing in the stock market or mutual funds or currencies or certificate of deposits or permanent life insurance; some of it much more complicated but all it requires research and serious consideration.
So before you even get started, you need to think long and hard about your resources and the approach you want to take. The four investing points below all need consideration before you move forward on how to best-invest your hard-earned money.
Review Your Financial Situation
First, you need to organize your finances. Investing can be both fun and lucrative, but it might not make sense if you are paying more in interest on debts than you will earn on your investments. The sensible thing in that situation is to pay off the debts first or get lower interest rates on the existing balance. For example, if you are paying off student loans, you can find out in just two minutes if you are eligible for lower rates. This can also cut years off what you owe. You can use the money that you save to put toward investments. You should also have an emergency fund before you start, with enough to cover at least three months of expenses.
Time and Interest
You need to consider how hands-on you want to be. This is a function of how much time and energy you have and how much you want to learn. There’s nothing wrong with approaching investing passively, putting your money in funds and largely allowing it to do its thing. This would be the case with mutual or index funds. You could also have a robo-advisor select a strategy for you. You probably won’t get super-rich taking the passive approach, but you can do very well. On the other hand, if you have the passion to do the research, you could make a huge amount of money if you become more active.
Budget and Risk Tolerance
Whether you have $100, $10,000, or even more, will it affect the kind of investments you can make? There is actually a lot you can do with $100, but some approaches will require larger minimums. Whatever you decide on, it should be money you can afford to lose or at least not have access to for a certain period of time. This is where your risk tolerance comes in. When assessing your appetite for risk, consider your age and your aim as well. If you are older and hoping to boost your retirement savings, you may not want to be too risky because you have less time to recover from setbacks. On the other hand, you also have less time to watch your money grow, so if you’ve got some cash to spare, you may want to throw it to risky prospects and see what sticks.
These days, going online makes it easy to get started with needing a professional, especially since you can use a robo-advisor. However, just for peace of mind and to better understand various strategies and the landscape ahead of you, you might feel better if you meet with a professional to discuss your goals. Friends and families may be able to provide recommendations.
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