While most individuals plan on how to make their lives better, there’s always a difference when you look at each person’s arrangements. Wealthy folk are always making investments while those on the lower end spend every penny. The former use their monies to acquire assets that earn interest or profits in the future. Investments require making deliberate decisions to purchase assets that offer profitable returns. Smart investments need lots of research, determination and patience. Next is a look at a few tips on what you need to know when investing.
Select The Ideal Platform For Your Needs
Any individual who desires to spend has to identify a platform for trading that they are comfortable with. The most common platforms include:
- Online stock brokers- This platform is ideal for investors with busy working schedules or those who prefer the anonymity of online trading. Agents operating in online markets such as CMC Markets provide a cheaper trading alternative to the brick and mortar traders.
- Financial advisors- Investors who prefer face-to-face interactions and who wish to seek professional guidance are likely to look for financial advisors to handle their investments. Investors with large sums of money to spend hand over their monies to such parties so that they don’t have to do the work themselves.
- Investment apps– Capitalists who seek the ease and convenience of automation are likely to select this platform. With investment apps, you don’t have to spend hours researching and can invest as little as $10 right from your phone.
- Direct mutual fund accounts- This avenue is ideal for investors who want to avoid paying brokerage fees. Here you can buy mutual funds directly from a mutual fund company.
Avoid Individual Stocks and Diversify
New investors are often caught in the hype of a growth stock and lose all their monies. Buying individual stocks results in tying up all the money in one company. If the company goes bankrupt or has a bad quarter, you end up losing most of your investment. The rule of the thumb when making investments is to diversify because it improves your chance of earning high returns while mitigating risk. It can involve adding stocks across different industries to a portfolio of one or two stocks or allocating monies to many asset classes that represent equity and fixed-income investments. The rationale of diversification is that by spreading one’s exposures across multiple asset categories, you improve the general risk-return characteristics of a portfolio.
Beware of the Fees
Costs eat away profits from an investment, hence the need to keep track of all the charges. Investment charges apply whether you are dealing with a stockbroker, financial advisor or buying shares online. Ask the firm to explain all their costs so that you know what you will pay before committing to any investment. Sometimes higher fees mean quality services but always determine if the charges are reasonable. The most common charges include:
- Transaction costs- These are the fees charged every time an investor buys or sells shares of an investment
- Annual fees- The fee charged each year for shares owned in a mutual fund
- Front-End Loads- These are the commissions charged on the initial purchase of an investment. Front-end loads are often used with insurance policies and mutual funds.
Determine the Length of your Investment
Decide how soon you want your returns. Investors’ time frames vary depending on their goals and the kind of risks they are willing to take on. Individuals who want to save for a house deposit that will be needed in a few years should stick to cash savings accounts rather than buying shares while those saving for pension say for 25 years should focus on long-term investments. Funds invested over a long haul reduce the effects of inflation, thus enabling you to reach your retirement goals.
Maximise on Tax Savings
It means investing in 401k, an IRA or other retirement accounts. Every dollar invested in any of the accounts is not taxed like the rest of your earnings, but you pay taxes on the money withdrawn during retirement. Investing in Roth IRA and Roth 401k will get your savings taxed like regular income but not on money withdrawn during retirement. Be sure to calculate the returns from the savings after paying tax. You may also negotiate a tax friendly salary structure with your employer to increase savings.