Before You Invest A Single Dollar, Read This

If I were to make a survey asking, “What is the smartest thing to do with your money?”, I bet that the majority of the participants would respond with ‘invest into something.’ However, people have no idea where to begin with investing. Turning to the internet can turn out quite treacherous which, admittedly, does make reading this quite counter intuitive, so I came up with a list of legitimate tips and those that may mislead you into a terrible decision. Here’s what to embrace and what to keep away from.

Don’t Gamble

Investment is based on taking risks but it isn’t gambling, which means that you have to understand your risk tolerance beforehand. Although it is based on genetics, risk tolerance is positively influenced by education, wealth and general income. It’s also influenced by age, meaning that the older you are, the less tolerant to risk you are likely to be. To put it in psychological terms, risk tolerance is the extent to which someone chooses to risk going through a less beneficial outcome in the pursuit of a more favorable outcome.

To put it in layman’s terms, someone who would risk putting in $4,000 in order to earn additional $4,000 has a higher risk tolerance than someone who’d be fine with risking $100 for a potential prize of $1,000. The former group is more likely to make money easily, but also lose it all just as quickly, while the latter bunch will take little risk, but always go with the less lucrative bets. The bottom line is to find your place before investing!

Don’t Expect A Return

Okay, bear with me here, because this is potentially the most valuable lesson to be learned about investing. Once the investment money is no longer in your account/wallet/pocket, it is no longer yours. Think of it as a potential future payoff, but never expect a return, because you might end up losing all of it and this amount of disappointment can be devastating for any investor, regardless of their risk tolerance.

Here’s the most important part. You should never invest more than you’re willing to sacrifice. Decide on the amount of money that you can do without and say goodbye to it. Your inner voice should go, “Who knows, maybe I’ll end up getting rich,” rather than, “Oh boy, I am going to be loaded soon.”

Never Blindly Follow Tips

A tip from a stranger on the street may easily end up just as valuable as the one coming from your friends, family and neighbors, meaning that these things are unreliable. On the other hand, this part of investing is sort of like a police investigation – testimonials and evidence might lead you the wrong way, but if you cover all the basics, they might turn out invaluable.

Never blatantly invest into something, unless you’re in it for the fun of it. You always have to do your own research.

Find What’s Perpetually Popular

The world of investments is an ever-fluctuating market. Once the trend is set, it will last for a certain time period and then another one will take its place. Of course, there are exceptions.

For example, ever since the dawn of currency, gold has been at the peak of popularity, and this still hasn’t changed. Why? Well, simply because the speed at which it replenishes itself naturally is nowhere near fast enough for the rapid harvesting. People all around the world are still investing in gold bullion and if you have what it takes, this could be your very own stable investment.

Always Have A Plan

Although nobody plans to fail, a lot of people fail to plan. This interesting play on words was brought to you by many failed investors who have somehow thought that they were above planning. You can rest assured that following blind luck in investing is even worse than gambling. It’s basically gambling without any fun involved. A comprehensive financial plan goes without saying.

The do’s and don’ts of investment are a useful thing to have by your side, but getting into this type of business requires a ton of research. We hope that this list of tips has made you realize that you are far from a pro investor, but sparked your interest at the same time.


Author Bio: Diana Smith is a full time mom of two beautiful girls interested in marketing and topics related to investment and cost efficiency. In her free time she enjoys reading about mutual founds, investment income and latest tax tips.