While most online financial guides address the best course of action when you are in dire straits, only a few of them deal with the scenario where you have a surplus of money on your hands. Sure, you can always find investment opportunities online but this is not enough on its own but how can you tell a good investment opportunity from a great one and how can you tell a great one from a horrible one? Here are several general rules that are bound to be of use for all future investors.
Consider how much you actually have to spend
A lot of people make a mistake when trying to invest in the first place, simply because they use the money they can’t afford to lose. Sure, making a lucrative investment with great ROI could potentially pay off your mortgage but is such a move always better than paying off your mortgage directly? Of course not. The strongest argument for such a move is the fact that the real-estate market could potentially start failing, as well. However, you need to take a look at the bigger picture and ask yourself – what is worse, losing money on an investment or losing money on an investment and having your home foreclosed. The answer to this question is an easy one to give.
Try to diversify
You should make diversifying your investment portfolio is a priority. Unless you have enough experience to recognize rising and declining trends in the global market, there is no safe way to invest. Some of your investments might fail while others may bring positive results which exceed your expectations. The best way to protect yourself is to diversify your investments a bit and minimize the chance of losing money on several ends at the same time. Even though some may argue that a recession tends to push all stocks down, some stocks are simply more resilient than others but this is something you need to learn how to identify beforehand.
Prepare a personal emergency fund
Even though this is something that a lot of financial experts don’t agree on, it is probably wise for you to make an emergency fund. Two of the strongest counter-arguments are claims that this money A) can be used better and B) feels like expecting your investments to fail. First, you never know when you will lose your job, your car might malfunction or have a medical emergency. It’s much better to have an emergency account to dip in than to be forced to cash in on one of your investments. As for the latter, this would be like saying that composing a prenuptial agreement is hoping for things to get worse.
Nothing is on the rise forever
The first time you start gaining some serious money on your investment, you may feel like a gambler on his winning streak. Still, keep in mind that the world of investment is not a roulette table and that no investment you make can rise forever. The best way to handle this situation is to simply make some safeguards of your own, which won’t allow you to go too far. Same as with stocks, you need to have a plan. The simplest tactic is to set a target price and then sell your stock as soon as it reaches it. Nonetheless, for this to work, your target price range needs to be realistic.
No such thing as a safe investment
Finally, you need to keep in mind is that there is no such thing as 100 percent safe investment. Various financial experts in the past have claimed real estate market to be fail-safe but this theory was proven wrong several times in the previous decade. As for the investments that are considered the safest, you have municipal bonds and money market accounts. On the other hand, those with a bit more traditional mindset might choose to buy gold in coins or bars or even invest in jewelry.
You need to see your money merely as a means to an end. With it, you can travel the world, send your kids to college or start an expensive collection as a hobby. Either way, you need to constantly invest if you want to reach this critical mass, where you have enough money for all those things mentioned above. Like always in life, you need to risk something in order to get back anything of value.