So, you’ve decided to take the plunge and invest in the stock market. Congratulations! Investing in the stock market is one of the best ways to establish financial security. By investing, your goal is to turn assets into wealth over the long-run and have money for future expenses, such as retirement or your children’s college education.
Since you’re new to investing, how do you know what choices to make that will best benefit your long-term goals? Investment advisor Mark Matson reviews important tips for first-time investors.
1. Know Your Long-Term Goals
Why are you investing in the stock market? Are you saving for your retirement? Are you building an estate to leave to your beneficiaries? Before you invest, establish your reasons for investing in the stock market. This will help you determine when you will need the funds. Then, you can calculate how much you should invest to reach your financial goal.
2. Recognize Your Risk Tolerance
Risk tolerance is an important concept in investing and is a fundamental issue to consider when planning your investment strategy. All investments involve some degree of risk. Risk tolerance refers to how much risk you’re willing to take in order to achieve your goals. Your individual risk tolerance is heavily dependent upon when you will need your funds. If you have a long-term financial goal, you can invest in higher-risk assets. If you have short-term financial goals or are nearing retirement, lower-risk investments are appropriate.
3. Determine How Much You Want to Invest
While there is no correct amount as to how much you should invest, it does depend on how much money you want to save and when you need it. If you’re just starting out, you may have to start small, and that’s OK. You can always increase the amount of money you invest over time. To help you figure out how much to invest, it’s ideal to speak to a financial advisor.
4. Determine What You Want to Invest In
You have options in regards to what to invest in. You can invest in almost anything, including stocks, fixed income, mutual funds, even residential or commercial properties. When choosing what to invest it, it’s a matter of the value of the investments and how they will help your money grow. A financial advisor can help you determine which types of investments are appropriate to invest in.
5. Diversify Your Investments
Investment professionals like Mark Matson heavily encourage diversification. When you diversify your investments, you spread your investments around. If you put all of your cash into one company and the company falls, you will likely lose all of your money. By investing in different companies in different industries, and sometimes different countries, a single bad event should not be catastrophic to your overall portfolio.