Even if your current investment funds are modest, you should learn what is the best way to invest your money so that you can mitigate various types of risks that are working against you. This will help you understand your chances of meeting both short term and long term expenditures that are at least 5 times your monthly income. When you have lesser money to invest, it is even more important to learn how to avoid bad investing mistakes. The quickest way to fund your investment capital is to simply increase your monthly savings propensity via spending less on consumer products.
Do you know the time span and purpose for each investment you are holding? If you have an emergency need for cash, do you know which investment can be divested instantly without significant loss of principal? For example, bonds do not fluctuate widely in value and are generally held for long term income and as a hedge against other more risky investments such as equities.
- Do you know your marginal income tax bracket including both federal and state taxes?
- Do you understand how your tax rate affects the returns on the type of investments you hold?
- Besides money invested through your retirement accounts, do you have other long term investments?
- Are your investments well diversified to mitigate market risk, for example spread across different asset classes such as bonds, stocks, precious metals, currency, real estate, etc?
- Do you know the best way to invest for a major short term expenditure versus long term financial goals? Will high return investments be more suitable or conservative investments?
- Are you holding long term investment products that can produce returns above the inflation rate?
If you will be investing in stocks, do you know how to evaluate a stock and review financial reports on the company, including its balance sheet, income statement, price earning ratio, price to book, free cash flow and other important financial ratios? Are you able to identify the strongest and weakest stocks within the same industry and sector?
If you are consulting an investment advisor, do you fully understand the products that are recommended to you including their risks/losses involved? Did your advisers disclose whether they are compensated through sales of their investment products available? Consumers must be aware of any conflicts of interest with regard to the selling and buying of investments.
Being able to regularly earn an income and saving money are the first step towards personal financial success. If you do not know how to choose the best investments that can meet your financial goals and suitable for your risk appetite, avoid making any until you have attained the knowledge to do so. Otherwise, you may end up losing your hard earned cash overnight. Tread slowly and fully understand the risks and potential losses involved with any form of investment. For beginners, the tip is to try not to lose more than 20% of your savings within the first 6 months. Gradually, you will learn the best way to invest your money at low risk of losses. Continue with your regular savings so that you can grow your capital both ways to achieve all your financial goals.