As the world economy continues to grow, more people than ever are turning to the stock market in an effort to find ways to make their money work for them. Unfortunately, not everyone is able to master the market effectively. To help you to make sure that you get the most out of your investments, the information below will provide tips for when, how, and if you should invest. Be Sure that You're Ready It makes no sense to invest in stocks, bonds, or mutual funds if you have thousands of dollars in credit card debt at interest rates in excess of 10%. You don't have to be completely debt-free, but you should be making serious inroads into your debt each month, and you should be paying very low interest rates on that debt. Also, be sure you are secure in your basic living expenses. You generally want enough savings to survive for three months in case of a job loss, disability, or other problems. Where Do I Find the Money to Invest? The first question for many people is "where do I get the money to invest?" There are plenty of stock mutual funds that allow you to invest with relatively little money. Use your next bonus at work, or your income tax refund, or put in some overtime for extra cash. If you can't come up with the money to start these portfolios, many funds will allow you to skip the initial lump sum investment if you sign up for automatic monthly withdrawals from your chequeing account. How Do I Choose an Investment? How do you choose a long term investment? The first step is to know what your goals are. Are you saving for a house? A college education? Retirement? The type of investment you choose will depend on the amount of time available before you need the money. Stocks are considered long-term investments, so it is best to plan on holding stocks or stock mutual funds for five years or longer. If you need the money sooner than this, you may reduce your return by cashing in when the stock's value is down. How Do I Determine My Risk Tolerance? Next, you need to know your risk tolerance. If you don't trust the bank to hold your savings, then you're probably not going to feel comfortable investing in volatile technology stocks. If you're likely to keep up with the latest curve of rising corporations, you might be interested in trying a moderate risk in your investments. High risks can yield high rewards, but should usually not be your primary investment for obvious reasons. How Do I Choose an Investment? How do you decide where to put your money? Most experts recommend spreading your money over several different types of investments to reduce risk, because typically one type of investment does well when another doesn't. For example, usually when returns on stocks and stock mutual funds are high, returns on bonds are low, or vice versa. By having money in both types of funds, you're more likely to get a decent combined return if one category takes a downturn. Your asset allocation should be tailored to your risk tolerance and how long you'll need to withdraw the money from your investments. For beginning investors, stock mutual funds are more popular than stocks in individual companies. A well-chosen stock mutual fund is less risky than an individual stock because mutual funds invest in many companies, thus spreading out the risk. If one company does poorly, the fund as a whole may still have a good return. You may freely reprint this article provided the following author's biography (including the live URL link) remains intact: About The Author |
