The Do’s and Don’ts of Investing
Investing your hard-earned money is more than just putting cash aside into a savings account. Proper investment is making your money work for you. That said, understanding how to properly invest can be quite the challenge. Whether you’re looking to invest in real estate or want to get involved in the stock market, the road to becoming a successful investor is filled with potential pitfalls and great opportunities. Knowing the following do’s and don’ts of investing can prevent possible failure, and help you start to grow your wealth.
Do: Do Your Research
No matter what area you want to invest in, doing your research can make all the difference. For instance, if you’re looking to invest in stocks, mutual funds, or exchange-traded funds, it is crucial that you know the nature of each. For example, investing in stocks can be quite costly, since they can require extensive investment fees. Alternatively, if you invest in mutual funds, you’ll find that the initial costs are a minimal percentage of the initial investment. Thorough research can also benefit you in the real estate industry, as the history of the property, market trends, and the property’s location can all play a significant role in the value of the property and the potential return on investment or ROI. Learning everything you can about a market can save you the pains of a significant loss, and can ensure a brighter future for your investment.
Don’t: Invest Based on Emotions
One major mistake new investors make is investing based on emotion and opinion. For instance, if you have the funds to invest into the stock market, you should pick the company that is showing signs of continued success rather than just a brand you like that is showing signs of future collapse. You also shouldn’t jump out of an investment if it is showing signs of fluctuation. Fluctuation is a regular occurrence, particularly in the market. Some investors tend to jump when world events threaten to throw markets into peril. Unfortunately, this may not be the best approach. Predicting financial markets is quite challenging, so instead of acting without the proper knowledge (or out of fear), it is best to consult a professional who can give you experienced advice on your options and appropriate moves for your investments.
Do: Invest for the Long Term
Legendary modern investor Warren Buffet once stated on CNBC’s Squawk Box, “Nobody buys a farm based on whether they think it’s going to rain next year…They buy it because they think it’s a good investment over 10 or 20 years.” Essentially, Buffet suggests that we avoid short-term thinking when trying to invest. Take real estate for instance. The returns on a real estate investment aren’t instantaneous as the process of finding renters, increasing the value of a home through renovations, and many other factors can affect your ROI. However, if you plan for the long-term on your real estate investment, you can often make a decent profit. The same can be said of trading in the stock market. While you can get in and out of a stock market quick, creating sustained wealth requires long-term thinking.
Don’t: Invest into One Industry or Company
Diversify, diversify, diversify. Diversifying your investment portfolio can mean the difference between financial success and financial collapse. Diversifying your portfolio can help reduce the risk of your investments, as it distributes this risk over a number of different categories and industries. If there were an economic collapse and you had invested all of your resources into one type of investment, the chances that you would lose money are significantly higher. However, by spreading out your resources throughout a variety of areas, it is likely that some of your resources would do poorly and some would do well- protecting you from a large potential loss. You can think of it as the phrase, ‘putting all of your eggs into one basket.’ If the basket drops, you risk cracking all of your investment eggs.
Becoming a Better Investor
Making your money work for you isn’t easy, however, with the right guidance and tools, proper investments can help you to grow your wealth and lead you in the direction of financial success. Want help getting started investing? Give a Dayton & Sydney advisor a call today!
PPG-140453d (10/18) (exp. 10/20)