Sunday, April 12, 2015

Three Things You Should Know Before Investing

It is a well-accepted fact that you invest your funds if you want to increase your wealth more successfully.

However, investments are considered risky, but smart investors minimize risk by educating themselves and also avoiding the common scams and frauds. Investment scams have risen in the last decade according to information from the BBB (Better Business Bureau and the FINRA (Financial Industry Regulatory Authority).

Listed below are three key steps to be aware of before you take the investment plunge.

Firstly, what exactly do you know about investment – One of the cardinal rules is that if you don’t understand an investment option, avoid it. If you plan to invest in stock funds, it would largely help if you first understand its methodology; how they work and operate. Most stocks and bonds are easy to understand and the funds such as mutual funds and exchange traded funds are also not too complex and are a good place to start your investment education. You can take on more complicated investments as your knowledge increases.

Identify and understand your risk tolerance – Prior to investing, it is better to understand your risk tolerance or how much risk that you will be able to withstand. The “financial risk tolerance” indicates the level of money that you can afford to lose, while the “emotional risk tolerance” indicates your emotional tolerance; whether a loss would put you out of your comfort zone into the anxiety zone.

The next step is about where you plan to invest - While there are a number of brokers out in the market; you have to consider all options depending on your needs and the cost of investing.

While investing can be a great way to build wealth, doing a little research before you plunge will go a long way.