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Choosing to invest your money should be well thought out and planned. What you choose to invest in, how much and with whom with are decisions you will have to make, but there are several things you should do before letting go of your money.
1. Research and Plan for you’re investing. Don’t go into investing blind, it would be advantageous to know how the company you are considering investing with is fairing in the market as well as how they have done in the past.
2. Determine your risk tolerance. The younger you are, the more risk you may be willing to take. This is because you have more time to ride out the turbulence of the market. The more risk you take, the higher return you should get on your investments, however this is not a rule and there may be times where you are losing money.
3. Diversification is key to reducing risk. Diversification means not putting all of your eggs into one basket and hoping they remain safe. You may want to invest solely in stocks, but do so wisely by picking stocks in different sectors (technology, energy, international, etc). While stocks should earn a higher return than other investments don’t limit yourself. There are other great investing options to look into also, like bonds, treasury bills or mutual funds!
4. Liquidity is crucial. Make sure you have enough funds that can be converted into cash quickly in case of an emergency. This can be through savings account, money market mutual funds or even certificates of deposits (you will be charged a penalty, but you can get your money the same day if needed).
5. Prepare for the unexpected, which also ties into diversification. You want to make sure you are planning for events that may hurt you financially, while working on attaining your financial goals. This could mean that you have plenty of insurance to cover your assets so if damage should occur there is little to no out of pocket expense. Or it could mean that you are well diverse so that a bear market doesn’t completely wipe out your retirement funds.
6. Review and revise. Once you start investing, make sure that you are seeing the outcomes you want. If the funds you are invested in are not getting the returns you planned on, or the company you invested in isn’t doing so well, it’s time for you to look at your investments and make the changes necessary to reach your goals.