5 Best Ways to Invest Your Money
Everyone wants to invest their money and get the best possible results. The common thinking here is that more value you can build up now the sooner you can retire, or the sooner you can afford that big trip or new car with the proceeds from your investing. Here are some tips on how to best invest your money.
1. Understand Risk
There are a lot of tips and tricks out there for investing your money but they all come with their own relative degree of risk. The opportunity for high returns comes with a higher relative degree of risk, so your tolerance for actually losing money is something you need to consider. The old saying that if it sounds too good to be true is no less true than when considering your investment options. You need to understand where your risk threshold stands to be a good investor.
2. Diversify Your Portfolio
Similar to the accuracy of “too good to be true” mentioned above you don’t want to put all your eggs in one basket when investing. Having all of your investments in a single market or a single industry exposes you to downturns in those sectors that can cost you significantly. An extreme example of extreme risk is holding all of your investments in the shares or options of a company you work for. If that company were to go under you would end up starting from zero with no job and no savings. Diversifying your investments into different industry sectors (Oil & Gas, Manufacturing, Technology) and investing in different geographical regions (North America, Asia, Europe) can protect you from poor performance in any individual sector, and ensure you benefit from sector upturns at the same time.
3. Investment and Management Fees
Your gains can quickly be eroded by the costs of investing if you do not keep a close eye on the terms and conditions of your brokerage account and the management fees of any funds you invest in. Making sure the brokerage account you are using has the lowest cost structure available for your needs is important. If you make a lot of trades providers with low trade commissions are ideal, if you don’t make many trades than the commission is less important to you than other account fees. Similarly, you need to take a good look at the management expense rate charged by investment funds or mutual funds you put money into.
4. Focus on the Fundamentals
When making any investment it can be easy to get caught up in the hype and analyst reports surrounding certain companies. While sometimes the attention is warranted you always need to make sure you understand the fundamentals of any investment vehicle you are looking at (be it stocks, bonds, or mutual funds). Understanding those fundamentals and comparing to competitors can ensure that you are making a sound investment decision and not just jumping on the bandwagon.
5. Look for Tax Treatments and Matching Programs
There’s no quicker way to double your money than to take advantage of matching programs provided by your employer. While you’re often going to face some restrictions on your investment the restrictions are typically less important than the free money.
The tax treatment of your investment is also exceedingly important as what is the point of an extra 1% return if you’re going to pay 20% more taxes on your investment. Additionally, many countries offer different forms of tax deferral or reduction on amounts specifically set aside for retirement or education. These are great opportunities to maximize your growth and return on an investment.
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