Investing in and for your future is a smart move. But there are so many different types of investments that it doesn’t pay to dive headlong into the first one you come across.
It’s great to feel eager about investing your money. Maybe you’ve finally gotten around to setting a budget, trimming your outgoings and making sure you’ve got some cash left to invest at the end of each month. But before you do anything with that cash it makes sense to think about what you’re comfortable with.
What is your comfort level set to?
This level is different for everyone. Some people love buying shares in the hope that they will increase in value in the future. Other people prefer sticking to things they know will gain in value, even if that value is only very small.
So what level of risk are you happy with? If you don’t find out before you choose your investments, it could lead to lost cash, missed chances and more stress than you can handle. No type of investment is wrong (unless it’s illegal of course). But it can be wrong for you.
How much cash are you comfortable investing?
$1,000 to one person could have the same emotional risk attached to it as $10,000 will have to someone else. Again you have to find your comfort level and figure out where that money will go. You might feel just fine putting all your spare cash into one investment. But if you are risk averse you should think about playing it safer.
If you do want to entertain a little more risk – all without letting go of the safety reins – you can consider splitting your cash and putting a small amount into slightly riskier investments. In the meantime the main bulk of your savings can stay in a safer vehicle, like a traditional savings account for instance.
Should you spread the risk?
Most experts would recommend doing this, no matter how high your comfort level is in this instance. For example, don’t invest in the shares of one company. Invest in four or five different companies if you have the cash to do so.
Whatever level of comfort you want to focus on, think about how you can spread the risk you are taking on. The onus must be on your financial safety. Alternatively, if you are willing to take a gamble and put your cash into a riskier investment, it should be cash you wouldn’t be sorry to see the back of. Don’t invest your mortgage payments or your kid’s college fund.
Think ahead and figure out your goals
This is the best way to ensure you make the right decisions when investing. Never choose an investment if you feel rushed into it or you haven’t had time to find out all about it. This is particularly true for investments that require you to tie up your money for a certain length of time. Think first – act later.