No matter what the subject, the most important thing to do before you start something is learn what you need to learn. It’s crucial that you have learned all of the prerequisite concepts before you seriously attempt to master a new skill, and this is especially true when it comes to investing money, because an uneducated guess about where to invest could be as bad as gambling. You have far too much at stake to invest your hard earned money into random investments and hope for the best. Instead, here is some financial advice about what to look into before investing.
Short Term Investing
There are paper assets to invest in, such as stocks and bonds, and you can invest in these for any period of time. The problem with short term investing, also known as speculation, is that it is far riskier for your finances. In fact, if you are consistently investing in stocks for the short term, you are putting your entire portfolio at risk. Financial planning cannot actually help you much if you are only trying to invest in the short term, since you could be changing your asset allocation every month, every week, or even daily.
Long Term Investing
Did you know that over the long term, stocks in the stock market historically outperform all other forms of investments? It’s true! Historically, stocks provide the highest returns at about 10 or 11 percent on average every year. Bonds are in second place behind stocks, and the 10 percent returns on stocks are in stark contrast to the measly 5 percent average of United States Treasuries. Unfortunately, in the long term, inflation is a significant factor to deal with.
In fact, it’s safe to say that inflation is the biggest threat to your financial goals (aside from debt and taxes). If you are not successfully receiving earnings above the rate of inflation, than your money is becoming less valuable each year even though you have more of it. You need to get your returns above inflation, and with the help of a good financial advisor, you can. In the process, you’ll get closer to achieving all of your investment goals.
The Most Important Thing Before You Invest
Investing is certainly an important task that could put the entirety of your retirement nest egg and life savings at risk, so you want to make sure you’re risking as little as possible. The best way to reduce your risk is to ask financial questions of your financial advisor and take their investing advice to heart.
For answers to more financial questions, ask Chuck Price, the Financial Doctor. That’s what he’s here for.