How to Make Wiser Investments
In this unstable and highly volatile economy, it can be very confusing to know what kinds of assets to invest in these days to get the most return. However, the good news is that there are some things that you can do to make wiser choices. The following are some steps that you can take in order to make better investment decisions:
How To Make Wiser Investment Decisions: 1. Pay off high interest credit card debt. The best investment strategy of all is to pay off all of your high interest credit card debts as quickly as you can.
2. Gauge your ability to take on risk. All investments require risk. It is important that you realize that you could possibly lose some money by investing in bonds, stocks, or mutual funds because your investments are not federally insured. In addition, it is possible that you can lose your principal investments even if you purchase them through a bank. If you have a long-time financial goal, then you are more apt to make money by investing in assets with greater risks such as bonds or stocks rather than less riskier assets such as cash equivalents.1 However, if you are looking at short-term financial goals, then you will want to make a cash investment in items such as Corporate Commercial Paper, Certificates of Deposit, Treasury Bills, and Bankers’ Acceptances. The main concern to look out for is the risk of inflation outperforming your returns over time.2
3. Consider a more suitable investment mix. By investing in more than one asset category, you will decrease your risk of losing money. Based on historical perceptions, returns on cash, bonds, and stocks do not generally move up and down simultaneously. Economic market conditions typically cause one asset group to perform well and often cause another one to have poor or average returns.
4. Make careful consideration of investing heavily in shares of employer’s stock or any individual stock. If you invest a large sum of money in an employer or individual stock, and the stock does not perform well or the company goes belly up, then you will probably lose a lot of money. This is why it is best not to ever put all of your eggs in one basket. Instead, you should diversify your investments. If you choose the right group of investments in an asset group, then you may be able to reduce your losses without losing too much of your possible gain. 5. Maintain an emergency fund. It is wise to put money in an emergency account. In fact, some investors make sure that they have up to six months of money in savings in order to cover sudden unemployment or other unanticipated errors.
6. Consider Dollar Cost Averaging. Individuals that typically make a lump-sum contribution to an individual retirement account (IRA) either in early April or at the end of the calendar year may want to ponder “dollar cost averaging” (DCA) as an investment policy, especially in a volatile market. Investing in DCA can help protect you from the risk of putting all of your money in at the wrong time. By making regular investments with the same monetary amount each time, you will advantageously purchase more of a security investment when the price is low and less of the security when the price is high.
7. Avoid circumstances that can cause you to become a victim of fraud. The Securities and Exchange Commission (SEC) encourages you to ask questions and verify the answers with a qualified unbiased source before you invest.
If you have further questions regarding how to apply a particular rule or law, please consult with an attorney who specializes in securities law and/or a qualified financial investor.