For many people, investing can be confusing. Because of that confusion and its inherent uncertainty, they are less likely to put their money in an investment. Bottom line, why put hard earned money in something they don’t understand and potentially lose some or all of their money?
Below are 7 terms concepts, ideas and thoughts that are the cornerstone of investing that can help chart a course to successfully investing for both the short term and long term.
It’s important to note at the very onset that the money set aside for investing is separate from those funds in a bank savings account. Money in a savings account is for immediate needs that an individual may need.
Here they are:
1. Investment Diversification
Don’t put all your eggs in one basket because if the basket falls your eggs break.
2. Asset Allocation
How do you cut the pie?
3. Investor Risk Tolerance (Conservative, Moderate, Aggressive)
Can you sleep at night with the investment decision you made.
4. Investor Time Horizon (Short Term Investing, Medium Term Investing, Long Term Investing)
Tomorrow or when you turn 80.
5. Dollar Cost Averaging
Way to lower tax on any gains from future sales.
6. Investment fees
Fees investor pays to the adviser, Management Company and anyone else involved in a particular investment. Many times the fee is a percentage of the dollar amount invested. Also worth noting that for those individuals that itemize their deductions investment fees are tax deductible.
7. Stock Market Fluctuations
One thing that people do know about the stock market is that it goes up and down. The fuzzy part about that up and down is what impact does that has on someone’s pocket. A good way to gauge that impact is to start with a hypothetical amount and calculate the impact on the amount as the market changes.
There are more concepts, ideas and thoughts investors can learn about investing. However, these provide a great starting point to work from.
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