Investing can be a great way to grow your money and secure your financial future. Unfortunately, many people make bad investments or fall victim to financial fraud. If you keep a few general rules in mind, you can invest safely and effectively.
1. Safely Investing is a Long-Term Endeavor –
Turning a quick profit in financial markets is extremely difficult. Trying to do so can also be extremely risky. Many people are willing to believe that making a lot of money quickly is not difficult, and as a result, there’s no shortage of get-rich-quick schemes being advertised. Don’t fall for them. Make safe investments with reputable companies that offer modest returns over a long period of time.
2. All Investments Carry Risk –
You will always be at risk of losing money when you invest. Generally, investments that have higher potential returns carry more risk. Before investing, know your financial goals and invest in a manner that carries the smallest possible risk while still enabling you to reach your goals.
3. Invest Early –
Since investing is a long-term endeavor, you need to start early to maximize your returns. This is especially true with investing for retirement. Even a modest investment in your twenties can reap large returns by the time you are ready to retire. Choose investments that earn compound interest, meaning interest earned is added to the principal, so that the money earned will also start earning interest.
4. Diversify Your Investments –
Doing so lowers your level of risk. If you have your money in multiple investments and one of them loses money over a period of time, you will have money elsewhere that is still growing, thus minimizing the damage. If you have all of your money in the one investment that loses, the financial damage will be much worse.
5. Take Advantage of Company Matches –
Many large employers will match a certain portion of any contributions you make to a retirement fund it sponsors. If you don’t take advantage of this, you are missing out on free money.
6. Know Market Return Rates –
Know what different types of investments typically earn. Be wary of any investment opportunities that consistently offer significantly higher returns. Abnormally high rates of return are a huge red flag for fraud or higher risk.
7. Ask for a Prospectus –
This is a document provided to you by an investment firm. It shows the different types of investments offered and the returns they have earned in the past and they do so in great detail. Investment firms must file these documents with the Securities and Exchange Commission as well. The SEC is the government agency that regulates investment firms.
8. Ask Questions –
A competent investment adviser will be happy to answer any questions you might have. He or she should not answer vaguely. If you feel your adviser isn’t being clear to you about what investments he or she is offering you, invest elsewhere. The marketplace is competitive and another firm will happily take your business. Vague answers or refusal to answer questions is another red flag for financial fraud.
Choosing an investment can be intimidating, but common sense can help you out immensely. Remember that all investments carry some risk and such risk generally increases as potential returns increase. Be very suspicious if an investment promises an abnormally high return with little or no risk. Most of all, if you think something is too good to be true, you’re probably correct.
See Also:
- Bad Financial Advice Abounds
- High Performance Savings Accounts
- Teaching Your Kids Money Management Skills
- How To Develop Winning Money Management Skills
From Amazon:
- A Beginner’s Guide to Investing: How to Grow Your Money the Smart and Easy Way
- The Intelligent Investor: The Definitive Book on Value Investing. A Book of Practical Counsel (Revised Edition)
- Investing For Dummies
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