When you decide that you want to invest it is a big step towards growing your net worth. But once you take that step there is a mountain of information you need to know and understand before you start depositing your money into an account.
That is what this site is going to help you figure out. If you missed my last blog check it out to see if something catches your eye on investment vehicles. And once you choose the best one for you we will move to step number one.
Have Realistic Goals
When you start researching all of the different vehicles you can invest your money into, everyone is trying to tell you why their idea is the best one out there. They will give you false claims of 10x your money in 1 year.
Having goals is important but having realistic goals is even more important. The market on average returns 7% year over year over the long term. So if you have some investments promising over 1000% it may not be real.
Coming up with a number should be aligned with when you want to retire and live off of your gains. Using various rules such as the 4% rule or the rule of 72 will allow you properly calculate how much money you would need to retire. And then how many years it will take to get to that number.
Do You Want Help
It’s hard asking for help, but when you are dealing with your investments, help is most of the time what you need. Many financial advisors will reach out to you and want to help manage your money, because it turns into more money on their paycheck.
You could opt to not have any help and want to self direct your own money which is completely fine. I only caution you to be aware that most people who invest lose money, and I do not want this to be you. So reach out to a financial advisor if you even want a smidge of advice.
Best Account For You
There are many different accounts that you can open to pour you money in hopes of gaining more. I am only going to highlight a couple of them here for you.
Most of the time when I talk about investments on this channel it is geared more towards retirement accounts. Such as 401k and IRA’s. A 401k account is usually given to you from your employer. This account most of the time will allow you to put money into it tax free. However when you take the money out it is taxed.
An IRA or an individual retirement account, is more so the same as a 401k. The difference is you put money into the account post tax, but once you are ready to take the money out you will take it out tax free, and penalty free as long as you are older than 59.5.
The best account for you is going to be the one that aligns with the goals that you set for yourself. When you are able to talk to a financial advisor they will walk you through all of the options that are out there, and they will tell you which one is best for your situation. If you decide to take this journey alone make sure you do the research to be able to make the best informed decision for yourself.
Risk Tolerance
One of the biggest things that people do to mess up their coins is not take risk into consideration. Your risk will guide and lead you in the direction of what and when you should invest in something.
When you think of risk this is going to be home much money are you willing to lose before you pull the plug. Some people have more risk tolerance than others. My risk tolerance on the few things I dabble in is 2% on a single trade. But overall most numbers you find on the internet say 20% is a good number to risk.
This risk tolerance can be looked at over the term of a day, week, month, or even years. The longer your goal is, the more risk you should be willing to take, because over the long term you will make that money back with interest.
The best thing you can do is make sure you choose a percentage that you are comfortable with. More risk could potentially give you a higher reward, but on the flip side, less risk is usually seen as being more safe.
Diversify
Diversifying can mean two different things, either you are diversifying your investments in a certain market, like stock or option or you can diversify into different markets entirely. Both of these are things you need to overcome. The importance of this is so when one market is performing poorly, you won’t lose all of your money, because you have money in other types of investments that are unaffected.
When you diversify in a market, let’s say stocks. You would buy different stocks in two or more different areas that do not correlate with each other. For Real Estate this would be you investing in rental properties and maybe house flipping. Whatever you do, make sure you don’t have all your eggs in one basket.
Rob’s Opinion
When I first started investing it was my father who helped me open up my account with his financial advisor. This broker basically handled everything about my account and I “set and forget” it. This is the best way as your emotions don’t take over control of the black and white of money decisions.
The last point I want to home in on is that patience is key when dealing with investments. If you are trying to make a lot of money fast and legally, maybe you should do something else than invest. The best investors out there will tell you that time will be your best friend. And if you have more time behind you than in front of you, that is where my future blogs will help you out.
