Buy low, sell high. That’s about as basic as you can get when it comes to investing. But what does that mean and how does it apply to your life?
When you’re starting out with investments, you must first determine your risk tolerance. Do you enjoy the wild fluctuations that come with stocks or would that keep you awake at night? Do you want steadier growth in exchange for lower returns?
Whatever you decide, it’s important to understand your investments—where your money is going and what risks, fees and costs are associated with your choices.
Investment Variety Creates A Cushion
Keep diversification in mind, too, and not just with stocks, bonds, etc. in the U.S. market. In this global economy, there are multiple markets around the world where your money can be invested. As a rule of thumb to reduce risk, it’s prudent to limit any single stock or bond to no more than 10 percent of your portfolio, especially with employer stock. Too much reliance on a company for your employment and long-term savings goals can be disastrous if that company falters.
Mutual funds are an especially popular investment instrument because they pool investors’ money and concentrate on a variety of stocks, bonds and other securities. So when one stock dives in value, the mutual fund usually offers enough diversification to offset that loss elsewhere.
Ask Questions Before You Invest
A fund manager is responsible for the actual investments, and those services come with a price. Keep costs in mind when choosing a fund manager or any investment advisor. Find out how that person is compensated and what expenses are tied to your investment. When returns are low, high costs can really eat away at your gains.
Remember, it’s your money and your future. Take control of your investment strategy. Contact the investment experts at PrimeWay Federal Credit Union today.
Click here to access calculators that will show you the power of compounding interest and long-term savings. You can also use PrimeWay Federal Credit Union calculators that show you the value of a long-term, consistent investment strategy and what you need to do to return to your original investment balance following a down-turn.