Wealth building takes a firm commitment to making your money work for you and making smart decisions. Follow these cautions when you are on the investment pathway.
Investing is not just about seeking the highest possible returns. Consider your investment objectives to make informed, realistic investment decisions that will help you accomplish your financial goals. Set your investment objectives using the SMART model for goal setting.
Follow a Detailed Plan
Develop a plan to eliminate the urge to buy or sell investments without careful thought. Write it down and set dates to review it periodically. Establishing your plan will help you in good times and bad, and it will help you scrutinize those wild tips you get from your favorite family member. Include:
- Your investment goals and time frames
- The returns you need to meet your goals, and any income needs you have from investing
- The types of investments that fit your goals
- Your plans for diversification
- The risks you are comfortable taking to achieve your financial goals
Steer Clear of Trouble
Do your homework before investing so you feel comfortable with your decisions.
Avoid Trusting Others Blindly.
This is your money. Think for yourself and research the expertise of anyone offering advice before you follow it.
Avoid the Fairy Tales.
If something sounds too good to be true, it probably is. Red flags should go up if anyone promises a large guaranteed return on an investment.
Avoid Relying on Past Performance.
Choosing investments on their past performance is like driving using only the rearview mirror. Past performance is an achievement, not a predictor of what will come in the future.
Avoid Borrowing to Invest.
If your investment doesn’t pan out, then you still will owe the money you’ve lost to the lender. Rather, stick to your investment goals and set aside savings that you specifically designate for investing.
Avoid Holding Only One Investment.
Diversify. Changes in markets can happen quickly — before you even can begin to react. Diversifying your portfolio will help protect you during these swings, giving you time to make informed decisions.
Avoid Flipping Stocks.
Trying to “beat the market” by frequently buying and selling stocks is a losing proposition. In fact, nearly 82 percent of daily traders lose money.
Avoid Getting Emotional.
Having a plan and sticking to it can help you avoid mistakes and impulsive decisions.