In today’s poor economy, people are trying everything to plan for the future, including investing money.
Though many investments are successful, there are a handful of mishaps that can occur if investors use bad practices.
Presented below are five tips to assist you in making the right investment choices.
Do: Be Conscious of Fund Expenses
Fund expenses (sometimes referred to as fees) are charged to you for certain services like advisory fees, distribution costs, and transaction fees. Some expenses can be outrageously high.
CNN Money reports that you should invest in stock funds whose expenses are under 1.33% and bond funds whose fees are under .89 percent.
Don’t: Fall for the Ads that Seem “Too Good To Be True”
The age-old saying is, “If it sounds good, looks goods, seems good, it’s probably NOT good.”
Many of these Too Good To Be True (TGTBT) investment strategies promise things like “instant earnings” or “the best deal ever” and tempt you with phrases like “hurry, limited time only.”
Investors should not fall for the investment ads on late-night infomercials. Many of these ads promise the same TGTBT deals mentioned above. If you see any of these incentives tied to an investment plan, skip it.
Do: Have a Plan
Know what your next action is going to be before you have to take it.
Look to hire a professional financial advisor to help you plan and manage your investing. MONEY Magazine suggests two reliable websites to find the financial planner that is right for you. They estimate that it can cost anywhere from $1,500 to $2,000 for these services, but they will save you money in the long run.
Don’t: Always Go with the Pack
The majority is not always in the right.
CNN Money gives a perfect example of why following the pack can lose you money. According to the article, many Americans pulled billions of dollars out of stock funds and put it into bond portfolios. In the end, the stock funds generated returns of 8.7% while the bonds created returns of only 5.5%.
Along these same lines, don’t do what is referred to as “jump in and out,” meaning making purchases and quickly selling them. Stay in and see what happens.
Do: Invest in Companies & Stocks with the Highest Safety Margin
Knowing the margin that divides the points between earning money and losing money is very important.
Furthermore, MSN states that this is done by purchasing an asset at a large discount compared to its intrinsic value.
For example, one of the most commonly known investors, Benjamin Graham, looked for $1.00 investments that he could purchase for $0.50. This may not seem like much now, but in the long run it pays off. Looking at it on the profit side of things, it’s a 100% increase; you just doubled your money.
Following these five easy steps does not guarantee that you will make money. They are simply quick guides to get you started in the right direction.
Mutual Fund: an investment option that is run by a certain investment company that gains money through shareholders and invests that money in a group of assets.
Assets: anything of economical value such as a car, property, or business inventory.
Shareholder: the owner of a portion of the stock in a mutual fund or corporation.