Let’s set this up: you are working on becoming established in your chosen career field. You have a savings and a retirement account, and you’re not living paycheck to paycheck. And, for the first time, you’re thinking about making your money work *for you* instead of splurging on a new TV, new wardrobe, or all those other nice-to-haves.
Ah. Successful adult-ing.
Getting started in investing can be at tricky business. It’s a slow burn, and one that can require (relatively) sizeable amounts of money to ramp up quickly (or to just get into the game). But, just like the hitchhikers’ guide to the universe says, don’t panic. Investing is a smart choice if you go about it in a smart way, even in the current economy. Here are our top things to consider before making investment changes (and these are primarily sourced from the US Securities and Exchange Commission, so you know these are good tips).
1. You Need a Road Map
The best way to plan for failure is not making a plan. Prior to making any major financial decisions (not just investment), create a financial plan of your goals and risk tolerance. If your finances are fairly straightforward, you can probably do this on your own, but if you are married or have more complicated funds, get professional help. There’s never any guarantee that you’ll become wealthy through investing, but by having a plan, you should be able to gain some deeper level of financial security as well as understanding your financial position.
2. Determine How Comfortable You Are with Risk
By nature, mankind is risk-averse. Studies have shown that we would rather save the pennies we have versus risk losing them in a chance to double them. This isn’t a bad thing. But investing, by its nature, contains some degree of risk. Money invested is not federally insured, so there’s always a possibility of losing your principal. Research the various types of investments, like stocks, bonds, mutual funds, and the types of risk associated with each one. Pair your desired level of risks with your goals, which can help tell you if you want shorter term cash investments, longer horizon stocks and bonds, or a healthy mix.
3. Consider Dollar Cost Averaging
Dollar-cost averaging (DCA) is the technique of buying a fixed dollar amount of a particular investment on a regular schedule, regardless of the share price. More shares are purchased when prices are low, and fewer shares are bought when prices are high. In a volatile market, this is a good thing. Basically, you’ll wind up buyingmore when the price is low and less when it’s high.
4. Avoid Fraudulent Circumstances
The more you invest, the bigger target you may become to scam artists. Be on the lookout for too-good-to-be-true opportunities (because they probably are) and ask questions—a lot of them—if you’re ever cold-called or emailed out of the blue about your investment portfolio.
If you opt to work through the investing world alone, there are a few other things to consider. While some investment sites require fairly sizeable chunks of money to open accounts, others will allow you to do so for minimal amounts. Research trade fees as well – these can be a painful source of hidden costs – and, after choosing your provider, remember to rebalance your portfolio from time to time. Experts recommend reconfiguring (or at least revisiting) things every six months or so.
There are countless other tips you could consider to get started on your investment journey, but these are enough to get you started on the right path. Keep your money working, but don’t forget to enjoy it from time to time, too…another perk of successful adult-ing!