4 Things Every Investor Should Know

4 Things Every Investor Should Know

Investing may not be the easiest thing to do in life, but it can certainly be a rewarding journey.

After all, the main goal is to increase your wealth and accumulate money for long-term goals, such as quiet retirement or funding your children’s education.

Investing money is simply a good idea, but you need to learn how to do it right to see your finances thrive.

Being a successful investor is often a matter of temperament and habit, and that’s something that can be learned.

However, there are a few things that go beyond who you are as a person that you should definitely keep in mind.

For instance, whether you choose to invest in real estate or start your own Opportunity Zone Fund, it’s vital that you build financial safety nets.

You should also consider getting some investment advice from professionals and remember different investing rules that you can use to your advantage.

With that being said, continue reading this article to learn more about things you should know as an investor and get ready to make your money work for you.

Build Financial Safety Nets

Everyone has a different financial and personal situation, so before investing, ensure you have some safety nets you can land on if anything happens. Start with clearing up debts, such as child support, overdue taxes, or accounts currently in the state of collection.

Moreover, if you happen to have any high-interest credit card debt, pay it off as soon as you can. 

Savings are also a critical part of your safety net.

Having some cash put aside for a rainy day can be a life-saver in case of unexpected expenses or difficulties, such as medical bills, job loss, or car repairs. In general, it’s advised to put aside three to six months’ worth of your living expenses. These include food, housing, utilities, or debt payments if you have any. 

Other than building an emergency fund, you can also consider getting a safety net in the form of health insurance so that if you get seriously ill or need to visit an emergency room, you won’t need to scramble around to pay thousands of dollars in medical bills.

Use the Rule of 72

When you decide to put your money in the market, there’s one big question you’re likely to ask yourself: how long will it take for this investment to grow? Luckily for you, there’s an easy formula that can help you estimate the approximate future value of your assets, and it’s known as the Rule of 72. 

The Rule of 72 uses your rate of return to determine how long an investment will take to double. To calculate it, you need to divide 72 by the expected annual rate of return. 

For instance, if you decide to invest $50,000 into a mutual fund with a 6% average rate of return, start by dividing 72 by 6. This division equals 12, so now you know that at a 6% annual rate of return, you can expect your investment to double in value in around 12 years. After these 12 years, it should be worth about $100,000. Nevertheless, try to keep in mind that this formula is an estimation, and the years are approximate.

Ask Pros for Investment Advice

Whether you’re just starting your journey as an investor or already have some experience, asking someone for advice can still be a great idea. This is especially true if you’re unsure how to choose the right investments or simply want to try something new.

In such a situation, don’t shy away from getting in contact with an account representative or an independent financial advisor who can point you in the right direction or provide a few words of advice and encouragement. 

In case you don’t understand their recommendations, keep asking questions until everything is clear. Doing so will give you peace of mind when building your financial security and help you make more informed decisions.

Remember About the Risk

Regardless of what you invest in, there’s always a certain level of risk associated with all your decisions and investments. For instance, you may choose to go the ultra-conservative way and invest in vacuums, but this means that you will assume inflationary risk. Still, at times, investing in bonds comes with as much risk as stocks.

Keep in mind that having a diversified portfolio can reduce some of the risks. In general, it’s a good idea to invest in one or more diversified funds because they bundle investments, be it stocks, bonds, real estate, or other types of securities. 

This makes them more convenient and safer for investors to purchase. Investment funds are made up of hundreds or thousands of underlying securities, and diversifying is a way to earn higher average returns while simultaneously reducing at least some of the risk.

In Conclusion

Investing equals risking and, therefore, should always be approached with care and caution. That’s not to say that you should feel discouraged from investing; it’s rather to remind you that it’s better to approach it with diligence and understanding. 

Jumping into the world of investing without the knowledge of the basics is one of the worst things you can do, so try to balance out your expectations first and learn as much as you can beforehand. Follow the tips above and build your financial safety net, don’t hesitate to ask professionals for advice, use whatever you can to your advantage, and remember about the risks involved. Good luck!