Ten Points to Consider Before Investing

investment planning

Read These 10 Things To Think About Before You Start Investing

Given the recent events in the markets, you might be wondering if you should be making any changes to your personal portfolio of investments.

Getting the assistance and consultation that a certified investment planner can offer might be something that you’d think about doing.

However, before you decide on anything, consider these 10 important areas and ideas …

1) Formulate Your Basic Financial Roadmap:

If you’ve never before made out a financial plan, then you should do so.

It’s a chance to sit down and honestly assess your whole financial situation as it currently is, and this is a smart move to take prior to any investing decisions.

financial roadmap example

The first step in any successful investing is going to be identifying your risk tolerance and goals, either by yourself or with the assistance of Burlington financial investment advisor who has been vetted in the industry. There’s never a guarantee that your investments are going to make you money. However, if you have the right facts about both saving and investing, and then commit to a smart plan, then you should be able to generate financial security over the coming years and enjoy the advantages of having managed your money well. Hiring an experienced financial advisor goes a long way when thinking about the direction you want to go.

2) Analyze Your Comfort Levels In Terms Of Risk:

Any investment is going to involve a degree of risk. If you’re looking at securities like mutual funds, bonds, or stocks, then it’s crucial that you know prior to investing that it’s possible to lose a portion or even all of the money that you put into it. Deposits into many banks are insured by the FDIC, and the same goes for credit unions covered by the NCUA. However, money you invest into securities is rarely federally insured. You can lose your entire principal, which is how much you invest. This can happen even when you buy investments through a credit union or bank whose savings and checking deposits are insured.

However, with risk usually comes a reward, and in this case, it’s the possibility of an investment return greater than the principal that you put into it.

If your financial goal is one with a longer-term horizon, then you’re more than likely going to make the most money by investing carefully into asset categories with higher levels of risk, such as certain stocks and bonds, instead of restricting investments to lower-risk assets, such as cash equivalents. On the flip side, solely investing in cash investments might be more appropriate for shorter-term financial goals.

The main concern for anyone investing in cash equivalents is the risk of inflation, which is a risk if inflation outpaces and even erodes returns over the course of time.

3) Picking A Proper Investment Mix:

When you include asset categories that have investment returns which rise or fall during various market conditions in your portfolio, you can protect yourself against losing too much. There are three major categories of assets, being stocks, bonds, and cash. Historically speaking, they don’t move in unison, meaning they don’t all three go up or down simultaneously. Market conditions which might make one of them perform well can actually encourage poor returns in another category. If you invest in all three categories, then you minimize your risks of losing money, so the overall returns you get from your investment portfolio are going to go a lot smoother. If you see a dip in the returns from any one investment category, you can counteract those losses by having higher returns in one or both of the other two categories.

investment analytics and research

Additionally, asset allocation is crucial since it has a significant influence on when or even if you’ll wind up meeting the financial goal that you established. If you don’t put enough risk into your broader portfolio, then your investments might not generate substantial enough returns to make it happen. For instance, college educations and retirement are both long-range goals for many, but the majority of financial experts out there are going to tell you that at least some portion of your portfolio will have to be stocks or mutual funds that involve stocks.

4) Be Wary Of Investing Too Heavily In Any One Stock:

Have you ever heard that you shouldn’t put all your eggs into one basket? Of course you have. It might be a cliche, but it’s also one of the most pertinent ways to minimize your risk because it means that you diversify your investments. When you pick the proper group of investments in any asset category, then you can possibly limit any losses and smooth out the fluctuations of your investment returns all while not giving up too much of your possible gain.

You expose yourself to too much risk if you invest too heavily into any individual stock, and that’s doubly so for your own current employer’s stock. If your employer stock doesn’t do well, then you’re going to lose out on a lot of your money, and possibly even your primary source of income if you lose your job!

5) Make A Rainy Day Fund, And Keep It:

Do you have six months of income saved up in a very conservative savings product or account to handle emergencies like losing your job?

rainy day fund - umbrella and boots

If you don’t, save up to that before you do any other kind of investing. You’ll sleep better at night knowing that it’s there. Also, never touch it unless you really need it. If you can, fill it up to nine months or even two years.

6) Pay Down High-Interest Debts:

If you have any high-interest debt, such as credit cards, pay them off as quickly as you can. This is a strategy for investing in your future that pays off really well, and with no risk. When you owe money like this, then paying down the balance as much as you can as quickly as you can is a smart decision in all market conditions.

7) Use Dollar Cost Averaging:

Dollar cost averaging is one particular investment strategy that can give you protection from putting all of your available money in at a moment that could prove to be wrong. Instead, what you do is consistently add sums of new money to your investments over a longer span. When you invest regularly, typically with identical amounts every time, then you get to buy more investments when prices are rather low but less when the prices are instead high. Individuals who typically make lump-sum contributions to their individual retirement accounts usually do so either in early April or at the end of a calendar year. Instead, they might want to think about this investment strategy as a way to smooth out their ride in volatile markets.

8) Don’t Leave Free Money On The Table:

Quite a few employer-sponsored retirement plans involve the employer matching some or even all of the contributions.

image of coins on a table

If you have access to one, make sure that you contribute enough to get the full match, otherwise, you’re letting free money pass you by.

9) Re-balance Once In A While:

Re-balancing is as simple as putting your portfolio back to the original mix of asset allocations that you had decided on. When you rebalance, you’ll make sure that you get your portfolio back to your personal comfort level in terms of risk, nor will it overemphasize any particular category of assets.

Re-balancing shouldn’t be done too frequently. Either do it when one of your asset classes gets too far out of whack, or just every six months or every year.

10) Don’t Fall For Fraud:

Scammers read the headlines just as much as you do, if not more so. Many time, they’ll exploit very public news in order to trap prospective investors by making the ‘opportunity’ they offer sound reputable. SEC recommendations for investors include asking lots of questions and verifying those answers with unbiased sources prior to investing.

Take your time and talk to people that you trust.