It is often said that you cannot build wealth if all you do is spend all you have. You need to learn the art of using your money to make more money. Investing is key in the portfolio of every wealthy person. One of the investments you should consider is mutual funds. However, considering the state of the economy, you need to have a solid education about how it works and what should guide you in making decisions. Here are suggestions to help you.
Develop a personally-tailored financial guide
Before you add any investment to your portfolio, do a critical examination of your finances and come up with a plan. You need a financial roadmap if you want to navigate the murky waters of investing successfully. First, set your goals and determine your risk tolerance. You are not a true investor if you cannot risk losing some amount of money. If you cannot do this alone, you can bring in a financial expert who will break things down for you. Once you get your facts right and you have an intelligent roadmap in place, you are not far from financial security in the coming years.
Examine your risk tolerance
Even though this has been mentioned in the first point, it will be thoroughly discussed here. Whatever you are investing in; bonds, stocks, etc; you have to understand and accept that losing money is possible. There is no investment without risk, there are only high and low risks. Besides, the federal government does not insure the money you invest in mutual funds. However, if you are willing to play the investment game for a long time, you should invest in assets with higher risks as you would make more profits. But if you are in it for a short time, you should invest in cash investments. If you want to invest online, you might want to read about online trading to know about how risky the particular online investment you are interested in is and if you should go ahead with it.
Mix your investments
It is risky to stick to only one type of investment. Most investment returns fluctuate; so you should other investments that will help protect you against huge losses. For instance, if you invested in stocks, bonds and cash, the three cannot fluctuate at the same time. One category will do well, while the other will fail. If you lose money in one category, you will be able to counteract it with your profits in another category. However, ensure that you have a proper mix of investments so as not to shoot yourself in the leg.
Diversify your investments
Common sense tells you not to put all eggs in one basket; this applies to investments. After you have chosen the right mix of investments, go ahead to select the right group of investments in the category you have chosen. This way, you are reducing your loss potentials and the fluctuations that occur, while your potential profits remain unharmed. As a note of warning, it is not advisable to invest a lot of your shares in any company’s stock. Anything can go wrong and you end up losing your money.
Have an emergency fund
You should create an emergency fund. You do this by putting quite a huge amount of money in a savings account. This fund covers unexpected events that happen and opportunities you may not have planned for earlier. Emergencies may include health issues, legal matters, sudden unemployment, etc.
Pay off all debts
Do not try to act smart by keeping debts around for long. You will find that you are shooting yourself in the leg. The best investment strategy when it comes to debt is to pay it off. The longer you delay, the more the interest of the debts increase in value. If your debts are much, start by paying off the high-interest ones.
Rebalance your portfolio
Rebalance your portfolio when the need arises. This means you always ensure that your investment is not tilted towards one or more assets at the expense of others. You can do this based on your investments or calendar. However, many experts suggest that you rebalance your portfolio every six months or yearly. Despite the suggestions, keep an eye on your investments. They are the most reliable predictors that tell you when you should rebalance.
Stay clear of fraud
When fraud is mixed with investments, bitter emotions are inevitable. Some companies portray themselves as genuine and use an attractive opportunity to lure investors. If you fall for this scam, you will lose everything you have till the last cent. Ask questions and seek advice from family and friends before you go ahead to invest. Confirm the credibility of who you want to do business with from an unbiased source. Keep your money safe.