Opening an investing account may seem like an exciting way to build a solid financial future. But there are a few things to think about before getting started. It's not as easy as plunking down a thousand dollars on your favorite stock or mutual fund. Or at least, it shouldn't be. Here are five things to keep in mind:
1. Know your stuff. While most of us will always remain strangers to Wall Street and amateurs in the world of investments, you can take some steps to get acquainted with a few basic strategies. You don't want to throw money at an investment officer who will take advantage of your lack of knowledge to make a killing for himself while leaving you bankrupt. Sign up for a beginners' investment seminar or a community college non-credit class. You may be able to find one online. If nothing more, at least read a book or two or get some audiotapes from the library. Learn the terminology and introductory investment techniques, like rolling stocks or later, trading options. Hopefully you will be in a better position to protect your financial interests.
2. Find a reputable trader or investment company. Don't go with a fly-by-night enterprise, no matter how good their offers sound. Stick with a reputable dealer who cannot easily swindle you out of your life savings. You may want to ask someone you trust and whose investments seem to be doing well for a recommendation. You also can browse several firms online to find one that meets with your approval. Call to talk with someone on the phone or schedule an interview before making an investment commitment. Discuss low, medium, and high risks of sinking your money into various portfolio scenarios.
3. Don't put all your eggs in one basket. In other words, diversify. If you plan to invest $5,000 at first, don't put it all into one stock. If that company folds, you could lose the entire amount. Instead, talk with your investment representative about putting some of the money into a mutual fund, and another portion into bonds. That way, if one strategy doesn't work, the other might keep your investment afloat.
4. Make regular contributions. Even if you can afford just $25 a month, continue adding to your investment portfolio. Over time that money will add up and before you know it, you may have thousands of dollars in your investment account. If you have trouble getting the contribution to your investment company, arrange for a direct deduction or deposit. That way you'll never see or miss that money.
5. Invest only what you can afford to lose. Don't sell your house, car, and the kids' college education to put it all on a hot tip. Contribute an amount similar to what you might spend for a recreational pursuit, such as a club membership or a monthly hobby expense like golf. That way, if the worst possible scenario unfolds, you won't lose more than you can afford and the family's well being will not be threatened. You can rest easy knowing that disaster is not lurking around the corner.
These suggestions are just the tip of the iceberg. Find out more from a reliable source before putting your hard earned money into an investment account. If and when you do take the plunge, keep an eye on your assets to be sure they are working for you, not vice versa.