How to Invest Your Money Wisely

It’s more important than ever these days to understand how to invest money with prudence. Here’s a look at how to invest your money wisely.

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Investing your money means you purchase something or put your money in an account with the expectation of getting back more than what you put in. There are different types of investment products and some let you earn back more than others. Some investment products have a loss potential while others may guarantee a certain rate of return. You could lose your money if you invest the wrong way, so it’s important that you follow certain guidelines to invest your money wisely.

Define your financial goals. Do this step whether you work with a financial professional or you plan to manage your own money. Confirm why you’re investing in the first place, e.g. to save for retirement, have money to pay for your kid’s college, etc. Set a goal of how much you want to earn through investing – keep that number realistic. You must also decide how much risk you’re willing to accept as this determines what you’ll be investing in.

Pay off your debt before you invest. One of your primary financial goals should be to pay off your debt. You’ll save money just by paying off your debt because you’ll no longer be paying interest every month. In addition, getting out of debt frees up more cash to invest.

Choose a stockbroker carefully. If you’re going to use a professional to help you manage and select your stocks, make sure you choose wisely. Talk to several different stockbrokers, even ones from different firms. Get information about their experience, education, and their professional background. Research the brokerage firm and the stockbroker’s disciplinary action through FINRA BrokerCheck.

Make sure you understand what you’re investing in. Always thoroughly research investments before you put your money in. Some investments are riskier than others and you should understand the risk involved before you invest. Even if you’re using a stockbroker or financial advisor, still take time to understand your investments. That way, you won’t be surprised if the results less desirable than what you expected.

Be wary of the advice you take, especially from friends orrelatives who may not completely understand theinvestment themselves and from financial professionals who’d get a financial gain, e.g. commission or management fees, from signing you up for an investment.

Diversify your investment portfolio. That means learning how to invest money in different types of accounts. Some investments may earn money slower than others, but those less risky investments are also less likely to lose money when the economy turns. Big risk has the potential for big gain, but also for big losses. If you put all your money into risky investments, you could lose everything. Spreading your money around among stocks, bonds, CDs, IRAs, and funds gives you a balanced portfolio.

Invest in your retirement. Retirement planning is one of the most important steps in determining how to invest your money wisely. There are a number of financial benefits that come from setting up a retirement account. There are significant tax advantages when it comes to investing in Individual Retirement Accounts and other retirement plans. 401k plan contributions are often matched by employers. These are the type of opportunities that a wise investor would never miss.

Watch your portfolio. You don’t necessarily have to track your investments on a daily basis – unless you’ve invested in some risky stocks – but you should monitor it on a periodic basis to see how it’s doing. You’ll be penalized for taking money out of certain tax-deferred retirement accounts, so you may not want to touch those. But, you do want to catch maturing CDs before the CD is renewed, for example.

Don’t let emotions influence your investment decisions. Emotions can cause you to make irrational decisions about your investments. You may pull out of an investment because you fear it will take a turn only to see that it soars in future weeks. Greed can cause you to keep your money in an investment longer than you actually should.

Have an emergency fund that’s separate from your investment accounts. Once you have your money in an investment, the goal is not to touch it for any reason that doesn’t fall in line with your investment goals. Have an emergency fund in an account that doesn’t penalize you from early withdrawals and one that won’t keep you from reaching your investment goals. Typically that means keep your emergency fund in a savings account, preferably one that’s interest-bearing so you at least earn some money on your fund.

Always aim to make the wisest decisions regarding your investments. You may make some mistakes along the way, but hopefully you’ll avoid making ones that devastate your investment.