Anyone with a few dollars, an Internet connection and some perseverance can be an investor these days. That doesn’t mean you’re going about it wisely. There are smart ways to invest, and not-so-smart ways. We’re here to sort it all out for you.
Invest, Don’t Gamble
When you invest, you’re making an educated decision to earn profits. When you gamble, you’re rolling the dice. Of course all investments come with some degree of risk, but minimizing that risk is key here. You gamble when you throw all your money at the hot stock of the week with no research on your part. You invest when you’ve done your homework, socked away money, put it into stocks and bonds best for your financial goals, and let it ride for the long term.
Select the Right Platform
Some people prefer the speed, control and anonymity of online trading. Others prefer to hire a stock broker or financial planner to handle all their investment planning on the phone and in person. Before investing, think about what kind of experience you want:
- Online stock broker
- Financial advisor
- Investment apps
- Direct mutual funds
- Dividend re-investment programs (DRIPs)
Decide on an Account Type
You’ll have to decide whether you want an individual retirement account (IRA) or general taxable account. While an IRA allows for certain tax benefits when saving for retirement, it limits how much you can contribute and dictates when you should withdraw the cash. There are three types of IRA: traditional, Roth and rollover.
Already have a retirement account? Need something to invest in besides retirement like creating your own business? You’re best off with a general taxable account; just remember, your capital gains are taxable.
Select Your Investments
Mutual funds and exchange-trade funds are best for young investors who haven’t really played around with the market much. Leave the individual stocks and bonds for later when you feel more comfortable. Mutual funds are safer, plus you’ll save money by paying nothing or just one small trading commission. If individual stocks are what you want to do, go slow and steady, only devoting 10 percent of your portfolio.
Asset allocation is a big part of smart investing. You may want to lean on a broker or financial planner to help you manage a well-balanced portfolio consisting of stocks, bonds and cash. Also, automatic investment plans are wise if you’re just starting out or tend to get jittery when the market falters. Keep a calm head in times of turmoil and invest for the long-term.
Just be leery of investments touted by your broker that seem too good to be true, and always know a trusted stock broker fraud lawyer in case you’ve been taken for a ride.