Investing your hard-earned money wisely is a big decision, and you should know the facts in order to make an informed decision. Here are tips from the Securities and Exchange Commission.
• Evaluate your comfort zone in taking on risk.
Determine your goals and risk tolerance – either on your own or with the help of a financial professional. All investments involve some degree of risk. If you intend to purchase securities – such as stocks, bonds or mutual funds –understand before you invest that you could lose some or all of your money. The money you invest in securities typically is not federally insured. You could lose your principal, which is the amount you’ve invested. The reward for taking on risk is the potential for a greater investment return.
• Consider an appropriate mix of investments.
By including asset categories with investment returns that move up and down under different market conditions within a portfolio, an investor can help protect against significant losses. Historically, the returns of stocks, bonds and cash have not moved up and down at the same time. By investing in more than one asset category, you’ll reduce the risk that you’ll lose money.
• Be careful if investing heavily in shares of employer’s or individual stock.
One way to lessen the risks of investing is to diversify your investments. You’ll be exposed to significant risk if you invest heavily in shares of your employer’s stock or any individual stock. If that stock does poorly or the company goes bankrupt, you’ll probably lose a lot of money (and perhaps your job).
• Take advantage of “free money.”
In many employer-sponsored retirement plans, the employer will match some or all of your contributions. If your employer offers a retirement plan and you do not contribute enough to get your employer’s maximum match, you are passing up “free money” for your retirement savings.
• Pay off high interest credit card debt.
If you owe money on high interest credit cards, the wisest thing you can do under any market conditions is to pay off the balance in full as quickly as possible.
• Consider rebalancing portfolio.
Rebalancing is bringing your portfolio back to your original asset allocation mix. By rebalancing, you’ll ensure that your portfolio does not overemphasize one or more asset categories, and you’ll return your portfolio to a comfortable level of risk. Many financial experts recommend that investors rebalance their portfolios on a regular time interval, such as every six or twelve months.
• Avoid circumstances that can lead to fraud.
Scam artists often use a highly publicized news item to lure potential investors and make their “opportunity” sound more legitimate. The SEC recommends that you ask questions and check out the answers with an unbiased source before you invest.
Bond – A loan that you are giving to the government or an institution in exchange for a pre-set interest rate paid regularly for a specified term. The bond pays interest while it’s active and expires on a specific date, at which point the total face value of the bond is paid to the investor.
Stock – A type of investment that gives you partial ownership of a publicly traded company.
Mutual fund – An investment vehicle that allows you to invest your money in a professionally-managed portfolio of assets that could contain a variety of stocks, bonds and other investment opportunities.
Source: Wells Fargo