Are you planning to start investing your hard earned money? Investment is an important step in being financially responsible and independent. The sooner you begin, the better off you will be. But if you are a first-timer, you are likely to be afraid since you may not understand the market and are frightened by the investment options in different mutual funds. To make things easy and help you make an informed decision we have put together a few points that you should consider before you start investing.
Draw Your Financial Roadmap
Ahead of making any investment decision, try to have a close look at your entire financial situation. Check if you have made any financial plans before. The very first step to successful investing is to figure out your goals as well as risk tolerance. You can do so all by yourself or take help from a financial professional. Though there is no guarantee that you will be able to make money from your investments, it will always be helpful to get the facts about saving and investing right and follow an intelligent plan. Having a proper plan will help you manage your money and gain financial security over the years
Consider Mix Of Investments And Proper Asset Allocation
You can protect yourself from significant losses by including different asset categories with investment returns under different market conditions. The three major asset categories include stocks, bonds, and cash. The condition in the market that has caused one asset category to do well can often cause another asset category to have poor or average returns. So, when you invest in more than one asset category, it will reduce the risk of losing money. If investment in one asset category return falls, you will be able to counter the losses with good investment returns in another asset category. Besides, asset allocation plays a major in deciding whether you will meet your financial goal.
Create An Emergency Fund
In addition to investing, it is also important that you create an emergency fund. Smart investors always put enough money in their savings accounts so that they can easily cover an emergency. Most such investors will make sure they have up to six months of their income in savings. So, in an emergency, they will know that they have the money when they require it.
Pay Off Your Debt
Before you start investing you must pay off your debt since you never know if your investment strategy will pay off. So, if you have debt or owe money on high-interest credit cards, then the wisest decision will be to first pay off the balance in full or as quickly as possible and then plan to invest.
Take Advantage Of “Free Money”
There are several employer-sponsored retirement plans where the employer will match your contributions. When a retirement plan is offered to you by your employer you need to contribute as well to get your employer’s maximum match. So, if you do not make such a contribution you are simply passing up “free money” for your retirement savings. Avoid making such mistakes and take advantage of such benefits.
Consider Rebalancing Your Portfolio
Rebalancing means bringing back your portfolio to your original asset allocation mix. Doing so will ensure that your portfolio does not exaggerate one or more asset categories. You can also return your portfolio to a comfortable level of risk. Rebalancing means buying low and selling high, to cut back on the current “winners” and add more of the current “losers.
Avoid Circumstances That Can Lead To Fraud
Another important thing to consider ahead of investing is to avoid circumstances that could lead you to fraud. You may often find highly publicized news items designed to lure potential investors and make them sound legitimate. Therefore, it is recommended that you ask questions and clear your queries with an unbiased source ahead of investing. Before investing you should also take your time to talk to trusted friends and family members.
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