Do you know how to invest?
If your answer is no, why?
You should know where and when to invest.
In comparison to bonds, gold, cash or treasury bills, you should invest in stocks because they have over time outperformed the other forms of investment and have proven to be a winning path.
There are so many ways to invest in stocks; they could be foreign, domestic, individual stocks, index funds, mutual funds, ETFs, etc. It is important that you know what you are about to invest in, the level of risk and what is in it for you. Read on to learn more:
- Understand Yourself: Knowing yourself is a key that helps you determine what kind of investment to make. Ask yourself if you are willing to take the risk to invest in the unknown. The unknown refers to an investment that has uncertainty, meaning that it may or may not yield returns. On the other hand, you could be someone who is willing to invest on a sure bet, meaning that whatever amount you invest, you will definitely get a return on your investment. Once you decide, you will save yourself sleepless nights and panic. Then you can choose from individual stocks, index funds or mutual funds. If you are not a risk-taker then you should consider index funds or other funds that guarantee returns on your investment.
- Spend Time: Do not be in a rush, spend time to know whether to invest in stock, funds or both. For instance, when you invest in funds, there are insurance companies who will take your money and help you multiply it over a period of time. But do you have such time? Careful selection of mutual or index funds will help you know what to do against hiring a fund manager. Index funds move up and down according to the type of company, industry or market; therefore, you need time to monitor the individual stock as you are required to make the right judgement about the future prospects, managements and earnings. This will help you avoid financial disaster. You need to know how to forecast and also understand the principles before you decide. Do you have the time to read about companies or are you too busy? To get the gains of individual stocks, you need the skills and it takes time.
- Diversify: It is not wise to invest all your money in just one sector. For instance, if you invest only in the banking sector, what happens if the stocks crash? It is going to be a disaster. It is better you spread you tentacles. Invest in real estate companies and spread your net across other sectors. They cannot all fail at the same time. If one fails, the other will be a support to keep you going. If you choose to invest in individual stocks, a portfolio of 12-20 well-chosen ones will help create diversification and it will be easy for you to monitor. But you need to understand the companies and what their risks are.
- The Right Time: After you have decided on what you want to buy and selected your portfolio, you need to speak to a stockbroker. And you need to move slowly, by studying the market. Avoid entering the market in a downturn. Ensure you constantly keep tabs on your investment.
As your portfolio grows, you can add funds and more stocks to your investment based on what you are invested in. Your additional funds can be used to expand the number of securities that you hold or can be added to what you already have. As you do this on a regular basis, you will be surprised that your investments will yield mega returns and you will have enough to spend when you retire.
Go ahead and invest in stocks today.