Unless you want your money to lose value over time, investments are a good way to allow your money to earn interest and grow when you are not using it. There are many levels of investment you could look into, and each varies in risk level and time frame. But before you send all of your savings into one place, keep these tips in mind to make the most out of your money.
Identify Risk Level and Time Frame
Risk level and time frame are the two most basic and important factors to help you determine what type of investment is right for you. Risk level is essentially how much you are willing to lose in proportion to how much you want to gain. The riskier the investment, the more likely it is to gain — or lose — a lot over time. That’s the risk you take as an investor. Stocks are higher risk investments because the market changes daily. Savings accounts are lower risk investments because they earn slight interest over time and that interest rate can be set upon the opening of the account. Once you understand what it means to risk your money, you need to look at your time frame. When will you need to use this money? If you are planning to retrieve it in the next few years, it is best to opt for a lower risk investment. This ensures your money will not be caught in a dip of the market when you need it, and will also allow for steady growth in value beyond the cost of inflation. If you are setting money aside for many years, you can afford to go riskier with your investment. A good example of this is a retirement account: if you have ten or more years before you retire, your money will have more time to fall and rise with the market. This means your investment will (hopefully!) have a steady growth rate over many years, even though some years may be exceedingly low or high. The goal with long-term risky investments is a general upward climb so you get more in the end for the risk you took.
Diversify Your Investment Portfolio
Once you have an idea of how you want to allocate your money, you will want to consider putting it into many different investments. By placing your money all in one investment, you risk it all being subjected to the same flux and you will gain less in the long run. Diversify your portfolio by placing money in many different investments with various risk levels and time frames. In doing this, your dividends will come from many different gains and dips and is more likely to secure cash for you than just one investment would. Mutual funds are an example of diversification because they pool money from many investors and buy a broad spectrum of securities.
Trading is a good idea if you have been sitting with your investments for a while and want to see some higher dividends. You can choose to use professional trading strategies from a firm you trust. Trading allows you to buy stocks and commodities at low prices and sell them when they are high. This strategy fluctuates more than a buy-and-hold approach to stock investment, but, with the right research, it is possible to earn higher dividends. It is also higher risk, but it comes with a potentially higher reward.
It is important to remember that investing takes patience and guts. Especially when it comes to riskier investments, pulling your money out when things look bad will only cause you to lose more in the end. The longer you stick with investments, the more likely they are to increase the value of your principal over time. Keep these tools in mind to watch your money make money.