8 Doubts About Investments You Should Clarify

by Emily on March 1, 2019

in Articles

Let’s be honest – investing sounds like a really responsible, grown-up thing to do. As such, it can cause a bit of anxiety for those of you who are just starting to consider it. However, you don’t have to be intimidated by the idea of investing. If you prepare well and account for all the possibilities, a few good investments can set you up for a secure and carefree retirement or – even better – a chance to retire early or start your own business.

That being said, there are still several important things to consider when you decide to start investing. Here are the most common doubts about investing, and how to go about them.

1. When should you start?

The shortest and most accurate answer to this question is: as soon as possible. If you want to take advantage of the phenomenon of compound interest (which you definitely should, because it pays off almost incredibly), you should start investing as soon as you start earning. Of course, everything is not always ideal, and sometimes you will have a massive credit card debt of student loan to deal with before you can start investing. Still, every year counts, and if your life is financially stable – there’s no good reason to procrastinate. A ten-year head start can double the sum you end up with, so consider that fact if you ever need an incentive to start early.

2. How much money do you need to start?

Contrary to popular opinion, you don’t need to be filthy rich in order to start investing. Some forms of investment, like peer-to-peer lending, can be done with as little as $50. You can always open a Roth IRA account and start with a small sum that you’ll gradually increase when you can, or you can try the cookie jar approach, and save up until you have enough to make a serious investment. However, if you have $1000 at your disposal, it’s already enough to enter a stock market or invest in commodities. All in all, investing doesn’t require as much money as you’d think. Start small, and build upon it later.

3. What is your goal?

Before you start, you need to understand that investing is not a way to get rich overnight. In order to invest efficiently, first you need to define your goals. If your goals are short-term, like going on a vacation of paying for a wedding, you may want to look into lending clubs, gold and silver, or bonds. On the other hand, if you want to secure early retirement or build a retirement nest, better options would be stocks or mutual funds. Choose your investment based on your goals. A good plan and investment strategy can make your efforts much more meaningful, and your goals much more achievable.

4. What are the risks?

It may seem like an obvious piece of advice, but don’t lose your money if you can help it. Make sure you understand the risks for every individual investment you make. First, consider the company-specific risks. They include past scandals, lawsuit, and everything else that has to do with that particular company. Next, research the industry-specific risks. These include any laws that affect the industry that might have changed, any changes in consumer preferences, and any shift in demand for the products or services in that industry. Finally, consider the market risk, which includes shifts in demand for stocks that may affect the prices later on. Once you know about all kinds of risks that can affect your investment, you are capable of making an informed decision.

5. Why should you invest instead of save?

One word answers this question: inflation. If you keep your money in a bank, be prepared for it to lose its value over time. Prices and salaries grow constantly, an in 30 years, the money you worked so hard for will simply not be able to buy you as much as it could while you were putting it away. Simply put, long-term saving wastes your money. Investing your money means that you’re using it in real time, so its value isn’t lost. Investments also tend to help your money grow, instead of just keeping it safe. In conclusion, while there isn’t much difference in the short-term, investing definitely beats saving in the long-term.

6. How important is diversification?

Another obvious piece of advice: don’t put your eggs in one basket. Diversification is important because it provides you with a back-up option in case some of your investments fail. Make sure you invest equally into bonds, stocks, and cash, so you’ll be covered in the event that one or two of those plummet on the market.

7. What are the different investment options available to you?

There are a plethora of options to choose from. If you’re interested in safety as opposed to a big profit, you may want to look into real estate or consumer staples. Stocks, bonds, and day trading are what we typically think of when we talk about investing. Less typical options include commodities like diamonds, gold, and silver. They typically hold their value even in the economically difficult times, and during good times can almost double in value. Another option is looking into peer-to-peer lending. It is a convenient investment because companies like OurMoneyMarket provide you with a way to do it online and still gather profit. In addition, the sum required can be as low as $50 for a single loan, so the possibility for loss is greatly reduced. Research all options, and pick the ones that work for you, and are in agreement with your goals.

8. How does this particular investment work?

Never invest if you don’t understand how the investment works. A good test for this is trying to explain it to an outsider – if you can explain it clearly and precisely, you’re good to go. If not, well, maybe you need to check everything once again and make sure you really understand where your money is supposed to go.

Even though investing may seem a bit scary, it is probably the best way to ensure a financially secure retirement and increase your fortune. With a bit of luck and a lot of caution, you can probably look forward to early retirement.

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