5 Smart Investing Principles
When it comes to investing, there is no shortage of strategies and principles that you could subscribe to. Honestly, it can be very overwhelming at times.
If you’re starting your investment journey, however, we believe these 5 principles are crucial before making any major decisions; especially if you’re making these decisions independently of a financial advisor.
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1. Understand Your Time Horizon: Before you invest, evaluate when you want your investments to mature so that you can take advantage of your assets. Identify major life events that may require access to your funds and determine how long you can go without seeing your investments. Consequently, your time horizon is directly tied to principle #2; Know Your Risk.
2. Know Your Risk: If you’re just starting out in your 20’s, you may be more willing to take larger risks. Investing in the stock market where there can be large swings may be a good strategy since you don’t necessarily need to access your cash right away. If you’re a few years from retirement, you may be more risk averse. Understanding your risk tolerance is something to establish before exploring different investment opportunities.
3. Diversify: I’m tempted to add on, “and diversify and diversify”. We’ve all heard the expression, “don’t put all your eggs in one basket”. This statement could not be any more true when it comes to investing. A good financial advisor will guide you to varying investment opportunities based on your risk tolerance and your time horizon. Beyond that, choose investments that aren’t easily influenced by each other. The idea is to have a few different investments that somewhat act independently of each other.
4. Inflation: Inflation is commonly known as the silent killer in the investment world. For consersavative investors, placing cash in a small growth CD or savings account may actually lose money over time due to the steady rate of inflation. Assume an annual 3% inflation rate when choosing any investment portfolio. If your return on investment is below that, you’re technically losing money.
5. Start Now: When it comes to investing, we all should have started yesterday. Waiting to invest can be costly for your future and your ability to retire at your desired age. Connect with a Financial Advisor and Start Today!