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Investing Requires Saving.
You must live BENEATH your means by spending wisely
in order to have surplus savings available for investments.
Prioritize Your Obligations Before
Investing.
You must take care of your family and yourself by having
proper insurance and emergency savings, etc. Separate
your needs from your wants and prepare a budget. Find
ways to eliminate or reduce unnecessary expenditures.
This will enable you to have funds available for investments.
Consider Your Stress Level.
If you don’t have the stomach for volatile investments,
don’t consider them. You want to invest in a way that
enables you to sleep well at night. Know the level of
risk you are comfortable with.
Asset Allocation Is A Must.
By diversifying your investments into 3 or more unrelated
asset classes, you will reduce the risk that all your
investments will be down at the same time. Ex: Real
Estate, U.S. Stocks, Bonds, Foreign Stocks, Foreign
Bonds, Utilities, Money Markets, Emerging Markets, etc.
Use Caution When Employing Financial
Advisors.
Educate yourself first so you will be better equipped
to judge whether a potential advisor is the right one
for you.
Understand The Tax Consequences Of
The Different Assets You Choose For Investments.
It is very important to take full advantage of tax-deferred
investments before adding to your taxed investments.
Evaluate The Amount Of Time You Are
Willing To Spend Managing Your Investments.
If you enjoy reading the financial statements and company
reports on all your holdings, then you may be inclined
to hold more individual stocks. If you don’t have the
time or desire to check as often on your investments,
you may want to consider mutual funds or index funds.
Keep Your Expectations Realistic.
Do not count on receiving 30% returns on your investments.
Research the history of the asset classes you are considering
to get a better approximation of your long-term average
returns.
Plan To Buy And Hold Most Of Your
Positions.
Large volume buying and selling erode your gains over
time. Market timing has been proven to be a sure way
to be on the sidelines when markets rise. Panic and
selling when the markets drop lead to lost opportunities
to benefit when the market rebounds.
Try To Avoid Information Overload.
There are literally thousands of “experts” and investment
“gurus” out there touting their methods and secrets
for making you rich. Look for unbiased, factual sources
for your information, then read and understand the data
for yourself. Don’t be afraid to ask questions. The
Wall Street Journal, Value Line, Money Magazine, and
Smart Money are a few good choices for researching stocks.
Do Not Get Into A Hurry When Choosing
Investments.
Any long-term investment that is good now, will be good
a month from now. Investigate each and every consideration.
Do not be pressured into buying anything from a broker
or salesperson without first researching the investment.
Consider When You Will Need To Use
Your Investments.
Money needed in 6 months to a year should be in liquid
assets such as money market and cash accounts. Money
not needed for 5 – 10 years can be more focused in growth
stocks, for example.
Expect To Take On Higher Risk If
You Are Shooting For Higher Returns.
Money markets and Treasury bonds pay a relatively safe
return but the rate is usually lower than the riskier,
but higher yielding, growth stocks and lower rated corporate
debt.
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