In light of the current state of the global economy, many face an uncertain future that might jeopardize their employment. While certain careers are holding their own in the job market, many chose to invest their money as a safety net for a comfortable retirement.
Before you decide to take part in the hectic world of investing, there are a few things you need to understand, so that you do it right.
1. You Do Not Need a Lot of Money To Invest
Some people think that they do not have enough money to invest at the present moment. Because of this, they often put off investing to a later date. But this can be a fatal mistake, as investments tend to compound over time. This means that making small investments continually over a long period of time can provide you with a much bigger return than making large investments in the future over a short period.
With this in mind, there are a lot of great ways to invest with a small amount of money. Some of these ways only require a handful of dollars to get started. So, there is no excuse not to start investing right now.
2. You Can Invest in Securities Other Than Stocks
Some people think of investing as being synonymous with investing in stocks. But while investing in stocks has a proven record of producing high returns, with a historical annual rate of return of around 10%, there are many other good ways that even beginners can invest their money. This includes:
- Real Estate Investment Trusts (REITs)
- Peer-to-Peer Lending
Diversifying your investment portfolio with different types of securities is further a wise approach. This way, if one type of investment falls, your entire portfolio does not fall with it. Also keep in mind that some investments generally rise inversely to others, such as stocks and bonds.
3. You Can Invest Passively
If you are new to investing, it can be intimidating, especially if you are not an expert in finance and business, as how can you know what is a good investment?
Fortunately, you do not have to be an expert to successfully invest. Instead of taking an active approach toward investing, in which you select investments in an effort to outperform the market, you can take a passive approach. This entails simply trying to match the performance of the market as a whole. One of the best ways that you can do this is through the purchasing of index funds, which match the performance of popular stock indices such as the S&P 500.
4. You Should Invest Long-Term
Novice investors often make the mistake of buying stocks that have received considerable buzz and then selling them when they start to lose money. This can lead to buying a stock near its high point and selling it near its low point, which often leads as well to losses.
A better approach is to buy an investment and hold on to it for many years, regardless of how it goes up or down. By understanding that every investment has its peaks and valleys, and that, over time, investments will generally provide returns on par with their historical averages, you will more likely reach your financial goals.
5. You Can Invest with a Robo-Advisor
In the not-so-distant past, only wealthy investors could afford competent financial advice. But this is no longer the case. Using the latest in technology, robo-advisors are computer services that, for a low-fee, will match you to investments that will meet your goals.
Robo-advisors can not only help you select investments, but they can also manage your portfolio, making changes to it when necessary to keep it aligned with your goals. They are further particularly adept at passively investing on your behalf.
While there are many important things that you need to know before you start investing, as you can see, none of them are that complicated or difficult. By following them, you can be well on your way toward retiring in comfort.