Can you imagine not having to work for the rest of your life? Can you imagine having your money work for you while you just chill at the beach and have the time of your life? Can you imagine not having to imagine these things and finally make your financial dreams a reality?
This Is Possible Through Investing
How, exactly? Investing makes these dreams – and more – possible for you.
We understand it’s a very daunting move to pull that hard-earned money from the bank and “bet” it on something unfamiliar to you like stocks, bonds and other investments. However, a simple leap of faith can go a long way. With the right kind of research, knowledge and resources, investing can bring you the financial freedom you desire to finally have time for the things that truly matter in life – family, friends, vacations and the things you’re passionate about.
Did we paint a nice and vivid picture for you? Good. Maintain that drive; you will need it as you start your investing journey.
In our article What is Investing, we have mentioned that investing is getting your money to work for you. You put your money in income-generating assets such as stocks, bonds, mutual funds, precious metals, real estate or your own business with the intention of profiting from these investments.
Investing means maximizing your earning potential. Let’s say you set aside $1,000 of your salary as savings per month without investing it. At the end of the day, you still only have $1,000 – okay, maybe with a little interest income from your bank deposit – but that’s about it! It generally doesn’t cover inflation, so you’re actually losing purchasing power by leaving it in the bank because your real return (investment return after inflation) is negative. However, if you invest a portion of your savings – say, $500 – in, let’s say, a basket of stocks in the stock market, that money has the opportunity to earn for you. At the end of the day, you may have not only $1,000 in savings but also the income you earn from your investments. Not bad, right?
Of course, we’ll be straightforward with you, it does not happen overnight. You have to the find the investment mix that is right for you depending on the investment risk you can tolerate and the amount of money you can afford to set aside to invest. There will be bad days, for sure, but you will know what to do with the right kind of knowledge, wisdom and research.
General Guidelines Before You Start to Invest
- Know your goals – Want to prepare for the kids’ college tuition? Travel the world when you turn 35? Own a beach house somewhere in Southeast Asia? Retire prosperously? Be prepared in case of emergencies? Whatever your goals are should be clear to you as this will dictate how much you need to earn and by when you need to accumulate these earnings. These factors will be of great help in choosing the type of investments you should consider. It’s important that you know your objectives as it will also guide you in your investing journey and help you think long term.
- Know your risk tolerance – Make sure you know how much you’re comfortable with losing. Are you comfortable with 50% losses in your portfolio for example. Most investors are not, but high risk tolerance investors are due to their high ability and willingness to take risks.
- Patience is critical – We know it takes a lot of guts to invest, so we also understand if you would want immediate and tangible returns. Generally, though, it doesn’t work like that. Take your time. You’ll eventually get there. Don’t rush into investment ideas you read on Facebook or other social platforms without doing your own research and due diligence. Don’t just invest for the sake of investing. Your investments need to align with your objectives and risk tolerance. Therefore, due plenty of research and analysis before you push that buy button or acquire that new investment asset.
- Research, research, research – We can’t emphasize this any further! Always do your homework so you know what you’re getting yourself into. Ample research also comes in handy when things go south. This includes looking at and analyzing financial statements of companies in the case of the equity asset class (stocks). It also means researching the current business cycle and how it impacts the overall economy. Answer questions like:
- How will the current and forecaster future economic cycle affect your commodity exposure?
- How will rising interest rates by the Federal Reserve impact my real estate and bond exposure?
- Given fundamental and technical circumstances of a company holding in my portfolio, what is my price target I am looking to achieve?
- And many other questions like these should be considered.
- Start learning now! – If not now, then when? The earlier you learn and begin investing, the more investment opportunities will open up! Since you’re on Investor Academy, it seems you’re already on the right path. We’ll explore many aspects of investing and provide you the resources you need to educate yourself from the ground up.
Investing is about achieving your financial goals within your risk tolerance and other unique constraints and circumstances. Beware that just because someone told you that a certain investment will skyrocket to the moon in a few months, does not mean that this asset should be bought right away. Do your own research, be patient, know what your objectives are, what your comfortable risk level is, and do plenty of due diligence before buying any hyped stocks or assets. Next let’s explore 6 Things You Need to Do Before Investing; these are different than the general guidelines you read about in this article.