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If you’re starting to seriously plan your financial future, then you may have a good idea that saving isn’t enough. You need to invest your money too!
Saving and investing operate on different principles. You may need to learn some new rules as you decide where to put your money.
Here are a few principles that can help guide you onto the right path. A path that hopefully sees plenty of profit in your future!
Table of Contents
- 1. Diversify, diversify, diversity!
- 2. Know the risk of your investments
- 3. Always invest in markets you know
- Final Thoughts on the Lessons Everyone Should Learn About Investing
1. Diversify, diversify, diversity!
One of the first tips you will hear from anyone is to diversify your investments, but what does this mean, exactly?
Diversifying your portfolio typically means ensuring that your money is kept in different kinds of assets. You can diversify within the stock market, for instance, by making sure that your money goes into companies in different sectors and industries, so if one industry suffers a downturn, it won’t affect your other investments.
You can diversify beyond stocks, as well, by having some money in cds, property, or other assets. Basically, don’t have all your eggs in one basket! That way you’re not as likely to feel losses in a market as keenly as those who might have put a lot more of their investment capital into it alone.
2. Know the risk of your investments
Investing in different markets, as mentioned above, can help you spread your money and mitigate the risks associated with investing. However, you should always be careful to know the general risk of every investment you make, where possible.
Property, stocks, and other tradeable assets all carry some inherent risk, so it can make sense to balance your portfolio with lower-risk assets, such as bonds or a Certificate of Deposit. A CD, as it is known, is a type of account that sees your money kept by banks, credit unions, or other financial institutes, for a specific amount of time, with higher returns than other accounts, but none of the risk of the market.
When considering risk, I always like to think about how accessible your money is. A good example of this would be Home Equity Lines of Credit (HELOC), which is a way for homeowners to borrow against their home equity.
This is a more commonly known option, but there are other assets you can borrow against too. I recently learned about portfolio loans, which are an option for borrowers who struggle to get conventional loans. Unlike standard mortgages, portfolio loans are kept in the lender’s investment portfolio instead of being sold on the secondary market. This structure allows lenders greater flexibility, which can be beneficial for borrowers with unique financial situations.
3. Always invest in markets you know
If you’re investing in assets that can vary widely in value, unlike the safer investments mentioned above, then you should try to invest in markets that you have some knowledge about.
The simple fact is that it’s easier to get excited about what might seem like a bold, revolutionary new idea, technology, or company if you don’t know the reality of that industry. Don’t get suckered in by a charismatic pitch!
If you are interested in getting into a new market, then research it as much as possible. It is important to learn about it so you can more evaluate the potential risks and gains better.
If you are trading in stocks or investing directly in a business, then you may want to know how the business operates. This includes its sustainability, and plans for the future! This principle is widely known as working within your circle of competence.
Final Thoughts on the Lessons Everyone Should Learn About Investing
There will always be that temptation to play hard with your money. It is enticing to bid big on bold investments that offer massive returns.
Don’t let momentary urges and rising fads pull you away from the principles that can help you invest with a little more security. After all, the only asset more important than money is time. Gambling to big with your cash can be a waste of both!
What do you think are some additional lessons everyone should learn about investing? What investment lessons have you learned through the years? I’d love to hear from you in the comments!
