How to Invest Your Money Wisely
It’s more important than ever these days to understand
how to invest money with prudence. Here’s a look at
how to invest your money wisely.
Investing your money means you purchase something or put your money in an account with the
expectation of getting back more than what you put in. There are different types of investment products
and some let you earn back more than others. Some investment products have a loss potential while
others may guarantee a certain rate of return. You could lose your money if you invest the wrong way, so
it’s important that you follow certain guidelines to invest your money wisely.
Define your financial goals. Do this step whether you work with a financial professional or you plan to
manage your own money. Confirm why you’re investing in the first place, e.g. to save for retirement, have
money to pay for your kid’s college, etc. Set a goal of how much you want to earn through investing –
keep that number realistic. You must also decide how much risk you’re willing to accept as this
determines what you’ll be investing in.
Pay off your debt before you invest. One of your primary financial goals should be to pay off your
debt. You’ll save money just by paying off your debt because you’ll no longer be paying interest every
month. In addition, getting out of debt frees up more cash to invest.
Choose a stockbroker carefully. If you’re going to use a professional to help you manage and select
your stocks, make sure you choose wisely. Talk to several different stockbrokers, even ones from
different firms. Get information about their experience, education, and their professional background.
Research the brokerage firm and the stockbroker’s disciplinary action through FINRA BrokerCheck.
Make sure you understand what you’re investing in. Always thoroughly research investments
before you put your money in. Some investments are riskier than others and you should understand the
risk involved before you invest. Even if you’re using a stockbroker or financial advisor, still take time to
understand your investments. That way, you won’t be surprised if the results less desirable than what you
Be wary of the advice you take, especially from friends or
relatives who may not completely understand the
investment themselves and from financial professionals
who’d get a financial gain, e.g. commission or
management fees, from signing you up for an investment.
Diversify your investment portfolio. That means
learning how to invest money in different types of accounts.
Some investments may earn money slower than others,
but those less risky investments are also less likely to lose
money when the economy turns. Big risk has the
potential for big gain, but also for big losses. If you put
all your money into risky investments, you could lose
everything. Spreading your money around among stocks,
bonds, CDs, IRAs, and funds gives you a balanced portfolio.
Invest in your retirement. Retirement planning is one of the most important steps in determining how to
invest your money wisely. There are a number of financial benefits that come from setting up a retirement
account. There are significant tax advantages when it comes to investing in Individual Retirement
Accounts and other retirement plans. 401k plan contributions are often matched by employers. These
are the type of opportunities that a wise investor would never miss.
Watch your portfolio. You don’t necessarily have to track your investments on a daily basis – unless
you’ve invested in some risky stocks – but you should monitor it on a periodic basis to see how it’s
doing. You’ll be penalized for taking money out of certain tax-deferred retirement accounts, so you may
not want to touch those. But, you do want to catch maturing CDs before the CD is renewed, for example.
Don’t let emotions influence your investment decisions. Emotions can cause you to make irrational
decisions about your investments. You may pull out of an investment because you fear it will take a turn
only to see that it soars in future weeks. Greed can cause you to keep your money in an investment
longer than you actually should.
Have an emergency fund that’s separate from your investment accounts. Once you have your money in
an investment, the goal is not to touch it for any reason that doesn’t fall in line with your investment goals.
Have an emergency fund in an account that doesn’t penalize you from early withdrawals and one that won’
t keep you from reaching your investment goals. Typically that means keep your emergency fund in a
savings account, preferably one that’s interest-bearing so you at least earn some money on your fund.
Always aim to make the wisest decisions regarding your investments. You may make some mistakes
along the way, but hopefully you’ll avoid making ones that devastate your investment.
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