Everyone wants to invest in stocks but are afraid to lose their money. You hear horror stories like Bernie Madoff and think your funds are better off under your mattress. When making financial decisions, it is extremely important to research the companies you are thinking about investing your dollars with. You want to ask yourself:
– Is this company reputable?
– How does the investment work?
– Does the investment align with your goals?
– How long do you plan to invest (short-term, medium-term or long-term)?
– How much are the investments going to cost?
– What do you want the investments to do for you?
– What are the risks of the investments?
These are simple but very important questions you want to ask yourself. This will help you make the most suitable decision BUT, you must also understand what type of investor you are.
Typically there are three types of investors:
Let’s briefly break down all 3.
Conservative – Someone who does NOT want to lose their money, BUT wants their money to grow. Basically, this type of investor wants growth WITHOUT risk. This is impossible. They will go into the safest investments, which are normally money markets/bond funds. These types of investments pay an extremely low interest rate, so your money hardly grows. Always remember, the lower the interest, the safer the investment. This investor has no/low risk tolerance for the instability of the market.
Moderate – This investor is someone who has a low to moderate risk tolerance and wants reasonable, but relatively stable income and capital growth, and/or. You are comfortable with modest fluctuations in the year-to-year value of your portfolio and have some time to recover from any market downturns. Meaning, if you have time that you can invest in the market, when it takes a dive, you may be able to recoup your losses, if you don’t pull the money out. Interest rates are low to moderate and you can invest in a mix of stocks and bonds.
Aggressive – Show me the money and a lot of risk, please! Yes, this type of investor is known to have a high risk tolerance. They are not afraid of the stock market’s volatility and is willing to ride it out until it rebounds on an upward swing. This type of investor can devote a lot of time to staying in the market while it stabilizes over time. The interest rates you can earn are extremely high, BUT, the amount of money you can lose is extremely high as well. If you have liquid money elsewhere and are not afraid to take chances, then you might be an aggressive investor.
As a recap, before investing, be prepared to answer the questions mentioned above and to complete some type of Investor Profile questionnaire. This helps you to make the best decision, allows the company to see what type of investor you are AND where you should invest your money, based on your responses.
An informed client makes the right decisions.
Note: Investments are NOT guaranteed!
Next week’s topic will be…the difference between stocks and bonds.
Have a beautiful and blessed week!
Changing the lives in the community….one person at a time