When first getting into investing, you might contemplate just jumping into the deep end—but, before you take that leap, there are some things you should consider. Investing can be a tricky subject, which for some can enhance that feeling of needing to get it over with and begin investing at the drop of a dime. However, it’s better to acquaint yourself with investing, and the methods many professionals undertake, prior to trying your hand. Here are some of the best tips we have to offer for those just getting into investing, particularly what you should and shouldn’t be doing.
4 Major Do’s When Investing
Do Your Research
Before investing in an asset, you’ll want to do your research. This is a safe way to make sure that you understand what it is you’re getting into. Perhaps one asset you’re considering is at a higher risk of loss than another. If that’s the case, you should consider investing elsewhere, for the sake of your investment’s security. Furthermore, it will give you an idea of what that asset’s past looks like, whether it’s faced any market volatility or has been relatively stable over time.
Keep an Emergency Fund
There’s a benefit to having your money invested, whether, in retirement accounts, stocks, bonds, or commodities but you shouldn’t be every last penny either. To be safe, you should have an easily accessible emergency fund established, held either in a high-interest savings or a checking account. This is a safe way to have money on hand in case something unfortunate were to happen or if you needed to cover some sudden expenses.
Match Your Employer on 401(k) Contributions
If you work full-time for an employer, it’s likely that you have a 401(k) in which money is being stored. This individual retirement account is a sound way to put aside money from each paycheck to save for the future. In many cases, your employer will match your investments up to a certain amount, whether it is a percentage of your paycheck or an exact monetary amount. Match whatever they offer! Otherwise, you’re throwing away free money. In other words, if your employer is willing to give you $4,000 if you invest $4,000 why wouldn’t you take that? What if they only match half? You invest $4,000 and they give you $2,000… hey it’s still $2,000 in free money. You should take all they are willing to give. Of course, you can’t spend it for a while but that isn’t the point, as retirement gets closer you will be very glad you took every penny you could get.
Watch Out for Fees
When it comes to certain investments, there might be hidden fees you’re not considering. Whether those are fees faced when investing, on sales or trades, it’s something you should be aware of. Furthermore, you need to be aware of any taxes you might face at the end of the year. You don’t want to be hit with fees or taxes you didn’t expect, especially if money ever happens to be tight. Take some time to research these possible investments prior to putting down your first money.
4 Major Don’ts When Investing
“Don’t Put All Your Eggs in One Basket”
As said above, it’s important for you to diversify your portfolio. There’s a lot of risk to investing in only one type of asset. Stockbrokers often tell you that a balanced portfolio consists of both stocks and bonds. But a truly balanced portfolio requires even more diversification than that. You need a balance of stocks as well. That means some small “cap” stocks, some large “cap” stocks, some U.S. stocks balanced by some international stocks, etc. This can be achieved through mutual funds to give you even more diversification. The bond side of your portfolio should also be similarly diversified. But what most brokers fail to mention is the physical assets component of your portfolio. A truly balanced portfolio also has a physical assets component of both silver and gold bullion, usually recommended to be between 6-10% of the value of the total portfolio.
“Don’t Be Impatient”
There’s a benefit to researching the investment you’re considering, along with its trends over time, but you shouldn’t jump right in. If your research tells you a rebound is to take place around a specific time, whether for sales or purchases, you need to have patience. You should also “paper trade” before just throwing real money away. Many brokers have “play money” accounts that work just like the real thing but don’t gain or lose real money. That way you can become familiar with their software and see how your investment system works in real-time.
You also shouldn’t expect to get rich overnight or even in a single year or two. Investing is a long term process and you need to have patience. If you try to get rich quickly you will have to take unnecessary risks and in the long run, you will lose more than you make. One of the best books for learning to limit your risk is Trade Your Way to Financial Freedom by Van Tharp.
“Don’t Become Obsessed with Tracking Your Portfolio”
Just as it’s important to do research on your investments and the market they are located in, you don’t want to lose yourself in the numbers of the whole trade. It can be easy to become obsessed with tracking your portfolio, watching the value of your investments 24/7, determining the best times of day to buy and sell, etc.—but there’s more to life than becoming too invested in your investments. Give your stocks space to breathe. Even if you lose some value, that’s expected when investing. It’s all part of the process!
“Don’t Treat Your Investments Like Current Wealth”
You can sometimes really win out when investing in various assets. Sometimes, you just might end up with an asset that suddenly grows in wealth—perhaps the value of your portfolio has skyrocketed from its initial standing. If this happens to be the case, keep living within your means; do not treat your portfolio like money you can freely spend.
With an enriched portfolio might come the feeling that you have a new wealth to play with, but you shouldn’t treat it like a checking account. While those assets are part of the market, they are still liable to losses. If you’re considering spending the money which your portfolio currently holds, you should only do so when selling those assets off. Yet, remember, those sales—capital gains and all—are still open to taxes.
Research First and Act Methodically
When investing, it’s best to take your time before you begin sprinting. However, waiting for the perfect moment to invest is a losing game—there is no perfect moment. The best method of investing is a slow and steady building of your investment portfolio. Having a portion of every paycheck invested ensures that you will get the average price rather than being emotionally involved and ending up paying the highest price for the hot investment of the day. This investment strategy is called “dollar-cost averaging” and it has proven over time to be the safest. Of course, if you find after doing your research that your chosen investment vehicle is “on-sale” you could throw a few extra dollars at it in an effort to bring the average price down even further.
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