If you’re looking to get into investing, then you might start where most people would: looking at which investments might be profitable to get into. It’s only natural that you want to start putting your money where it can do you some good, but you might want to take a moment to hang back and think before you start putting your chips on the table. Investing can be very lucrative, but it can also be demanding, and it can come with costs and responsibilities that you should at least consider before you start. Here, we’re going to look at what you need to know about investing before you start.
You’re better off with a plan
You might have some extra cash lying around and think to yourself “I should invest this in something.” It’s easy to find the means to put that money into a stock or some other asset and simply hope that it will do well for you. However, without a real financial plan, the money that you put into investing is less likely to do any good for you. Having goals that you can work towards, whether it’s paying off certain debts, achieving financial freedom, or otherwise, can help you be more mindful of how, exactly, you use your money.
Save before you invest
The amount that you stand to gain from successful investment increases exponentially the earlier you start doing it, and the more often you are able to put more money into it. As such, you want to make sure that you have the money to invest at hand, and the best way to do that, unless you get a bonus or a major pay bump without any added expenses, is to start saving as much as you can. The right savings account can help you build an investment fund that you’re able to use to really create a strong portfolio from scratch.
Understand the nature of risk
Investing is not like putting your money in a savings account. When saving, you can reasonably expect that your money is going to stay put and grow at a slow but reliable rate. When you invest money into markets, there is always the potential for loss. As such, when you’re looking at what to invest in, you should get an idea of how much you are willing to lose in the pursuit of profit. You can place orders to pull back your money from certain assets if you lose a certain amount, allowing you to cut your losses and invest elsewhere instead. In general, you have to know what level of risk you are comfortable with before you put any money down.
Consider a time-frame
With a financial plan, you have a goal that you want to aim towards with the help of the right investments. However, it might also impose certain limits, such as time restrictions that you have to keep in mind. If you want to make enough money to pay off your kid’s college fees, then you might want that money in time for when they start college, for instance. As such, this can give you an idea of profit targets that you want to hit within different periods of time. This can help you get a good idea of how much you should be investing and where.
The tax implications
it’s important to be aware that your investment gains are treated as income and, like all other income, they are going to be taxed. How investment income is taxed is going to depend in large part on what form the income takes. For instance, some investments pay interest over time, some stocks pay dividends, and each of these is taxed in its way. Similarly, selling securities such as stocks for profit results in what is called capital gains, which are also taxed in their own way. The more money you put into investments, the more likely you are to be taxed more for it, as well, as net investment income tax can be added to the forms already mentioned. This shouldn’t stop you from investing, by any means, but you should be ready to pay the taxman when he comes knocking.
Be aware of the costs of investing
Taxes can eat into your investment profits, there’s no doubt about that. However, those are far from the only costs that you need to keep an eye out for. There are plenty of costs that can be associated with different investment options, such as transaction costs when you buy or sell certain assets, investment asset fees if you’re working with a broker, or even simple account fees for managing the account you use to trade assets. When you’re looking at new investment options, you need to think to yourself “is this going to cost me more money?” Sometimes, it’s worth the cost, but you should at least be mindful of it.
Investment professionals can be a big help
A lot of people like to think that they will be able to play the markets, totally independently, without any assistance, and be able to make their fortune that way. Indeed, enough time is spent learning the market and paying attention to financial and industry news and you can make decisions that are as informed as just about any professional’s. However, if you’re not willing to put in that work, then you should consider getting in touch with an investment professional to manage your portfolio when it starts growing big enough. Make sure that you do your background research on your choice of professional to ensure they are deserving of being trusted with making decisions on your behalf, of course.
Think about what your money is supporting
For a lot of people, there is not much to consider about their investments beyond “is it going to make me money?” If that’s the sole priority for you, then that’s fine, hopefully, you get to meet your goals. If, like many, however, you want to make sure that you’re doing some good with your money, or at the very least, not doing too much harm with your money, then you might want to avoid investing in any companies that go against your own moral and ethical concerns. To that end, you should be sure to research any company that you invest in to learn about their corporate social responsibility. Certain funds, such as ETFs and index funds, will also be particular about what industries they invest in for this reason.
Be prepared for some emotional swings
With a savings account, you can typically sit back and let your money accrue without having to pay too much heed to it. When you’re investing, however, you need to be a little more switched on and have to pay more attention to how the markets are moving to know when to double down or to pull back on investment. As such, when you’re paying more attention, you can get a lot more emotionally involved. This can make investing genuinely fun and thrilling in its own way, but can also make you a lot more likely to make decisions based on emotions. This can include panicking during a downturn and selling before the market is able to correct itself. You have to learn to keep emotions out of the decisions you make where possible.
Investing is typically a good idea, but it comes with some extra caveats to be considered and some things to think about. Here, we’ve taken a look at a few, but you should continue to do your research, as well.
Leave a Reply