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Investing has become a popular hobby and point of discussion for so many people today. Almost half of Americans in a recent study said they wanted to learn more about investing.
But many are already getting involved. An enormous 87% of those expressing interest shared that they already have investments on some level.
The interest is there and people want to know how building investment strategies can earn them money.
We have broken down the first five steps on the road to creating a strategy that’s right for you.
1. Only Invest What You Can Afford to Lose
Maybe this seems obvious, but more people approach investing as a form of gambling hoping to take home a big win after a couple of tries.
The reality is much less glamourous but can be a great deal more satisfying when watching your money grow over time.
With that in mind, create a budget for your investing and don’t exceed it.
2. Keep an Emergency Fund And Do Not Touch It
Investing is great when you see the money you put into a stock returned with greater value, but unfortunately, it can go the other way too.
If you want to invest responsibly, you should also have a comfortable savings account that should help you get back on your feet in emergencies if the value of your investments drops drastically.
However, by intelligently investing in a diverse range of stocks, this shouldn’t happen. This brings us to the next point.
Diversify, diversify, diversify! Everyone in stocks mentions diversifying your portfolio to the point that it may seem cliche, but there is a reason everyone talks about it.
Diversifying your portfolio simply means your investments as a whole are unlikely to take a sharp turn up or down. Of course, some investments may have drastic movements but spreading out your portfolio ensures that you will be less likely to suffer a massive loss that could devastate you financially.
This can be done simply by investing in stocks for small, medium, and large businesses as well as index funds like the S&P 500. Also, make sure to spread out your investments geographically. If a freak incident cripples industries in one area of the world where all your investments are, you could quickly see the value of your portfolio disappear.
For further advice and guidance regarding diversifying investments and the benefits of diversification, Jasdeep Singh, an MBA from UConn outlines the ways you can effectively protect your investments.
4. Roth IRA and 401k
There are also a number of tax-advantaged accounts available which allow you to build up a considerable retirement fund in a tax-efficient way.
The ROTH IRA requires a tax payment on the money going into your account, but the key advantage here is that whatever dividends and increase the account builds over time can be withdrawn tax-free in retirement.
401k’s can be used with your work as a retirement plan. The great thing about 401k’s is that your employer can match what you contribute to it, growing your investment over time. These accounts however are taxed when you withdraw funds, albeit at a lesser rate.
5. Building Investment Strategies
To get the best return on investments, you need to outline a plan and figure out what your long-term investment goals are.
With so many different options for stocks, it can be difficult to choose the right investments if you are unsure of what you want to achieve. Whether that goal is long-term savings or something you hope to make an income from, the desired outcome will impact the way you invest, and where you invest dramatically.
Luckily, there are free services such as Investopedia. This site offers users an incredible simulator that allows you to try your hand at investing risk-free and learn the ropes.
Got The Basics Down, What’s Next?
With the advice above in mind, you are ready to start exploring the world of investing. But there is still a lot to learn.
Building investment strategies takes time and careful consideration. If you feel ready to take a closer look, why not explore our other articles to find other great tips and guides?