Do the news stories of people raking in thousands of dollars while turning in their sleep tempt you to jump aboard the investment bandwagon? If your answer is yes, it is safe to say that you are not alone. But before you step blindly into the dark, let us light the torch for you. The investment business is not a money-making machine. Yes, you can make a lot of money, but at the same time, you also run the risk of losing a lot more than you can afford.
Step in blindly, and you are likely to trip. But, if you take well-calculated steps and take your decisions with due deliberation, the investment business can be extremely rewarding.
According to the world’s most famous investor, ‘If you don’t make money while you sleep, you work till you die’. Although Warren Buffet still works at the age of 90, he was on point. Making the right investments can be your ticket to an early and comfortable retirement. But before you step into the investment business, there are a few things that you must know, else you run the risk of running out of gas.
Here are the essential things you need to understand before investing your money.
Have an Emergency Fund
If you are investing your money into assets that are subject to market risk, you should build up an emergency fund. You should hope for the best and prepare for the worst. Hopefully, you will never need to access your emergency funds, but in the off chance that things don’t go your way, you will always have a safety cushion to fall back on. A wise decision would be to set aside an amount that is equivalent to roughly four times your monthly expense. The emergency fund can also prove useful to cover unexpected expenses.
Know Your Limits
It is very important to not get carried away while making investments and invest only an amount that you can afford to lose. While your objective might be to generate a sizable profit on your investments, it is also important to have and enjoy a healthy and balanced financial life. The best way to do this is to budget and maintain a record of all your cash outflows and cash inflows. This will help you decide the amount that you are comfortable investing.
Another simple way to balance your income with your expenses and investment is to adopt the 50-30-20 rule in which you allocate 50 per cent of your after-tax income to your expenditure, 30 per cent on wants, and 20 per cent on savings. During your initial investments, it would be advisable to invest only your surplus funds and not dip into your savings.
Know Your Timeframe
Before you start investing, you should have an investment goal in mind. Are you investing to save up for a house? Or are you investing to build a college fund for your kid? Or do you simply want to make sure that your savings keep up with inflation? Your investment goals can help determine the kind of assets you should invest in. Your investment goals will also determine the tentative time frame of your investments. You must have a clear picture of your investment goals and time frame. Once you have some basic clarity, you can chart out your plans on how, when, where, and how much to invest to meet your targets.
Invest Logically, Not Emotionally
While making investments or selling assets you should ensure that you do not let your emotions get the better of you. Don’t follow the crowd. Investing in something simply because it promises great and quick returns, without knowing the details inside-out is a recipe for disaster. Whether you are investing in the stock market or cryptocurrencies, make sure that your investment decisions are well thought out. If the prices are falling, do not get scared and sell off your stocks at rock bottom prices.
Diversify Your Investments
You shouldn’t keep all your eggs in the same basket. There are various types of investments you can make. These vary from stocks, forex, and cryptocurrency to real estate and life insurance settlements. Diversifying your investments can help you stay afloat if the market crashes. Even if you are investing only in stocks, you should try and invest in stocks of industries from different sectors. An easy way to keep track of all your investments would be to use an ECN broker that offers those facilities. The investment gurus at https://www.trusted-broker-reviews.com/ic-markets/ with their extensive experience can help you decide on what would be the best ECN broker based on your requirements. While diversifying your investments is a step in the right direction, you should make sure that you do not over diversify.
Know The Risks of Cryptocurrencies and Stock Market
Cryptocurrency is the new kid on the block. One, that is making a lot of noise and garnering a lot of attention. Just like the stock market, cryptocurrencies are extremely volatile. This is both an advantage and a disadvantage, depending on the way you look at it. The high volatility means that if you make the right investment at the right time you could take in thousands of dollars in a short period, but a small slip up could prove very costly. That said, while investing in highly volatile assets like cryptocurrency and stocks, you should be well aware of the risk that the investments entail.
Investing your money in financial assets can be a great way of making sure that your savings keep up with the inflation and that they do not lie stagnant in the bank. There are various routes that you can take and the right one for you depends on your investment goals and time frame. While investing, however, you need to make sure that you are well aware of the risks involved and invest only in an amount that you are comfortable losing. But don’t let all the warnings discourage you. The objective is not to scare you, but rather to make sure that you are well aware and take informed steps.