1. Divide Your Savings and Your Portfolio
You don’t want to lump all your savings together. After all, you probably have some expenses coming up in the next few years that you’ll need some savings for. On the other hand, you probably have some money that you hope you won’t need for close to a decade.
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Instead, you should put the money needed for expenses for the next five years in a short-term savings plan, and invest the rest in a balanced portfolio.
So how do you decide on a balanced portfolio? It depends on your personality, your goals, and how much risk you are comfortable with. It’s important to be able to differentiate your personal attributes and circumstances from the cookie-cutter directions that you may find on in internet investment forums. Other factors such as current income, age, and stage of life can make a difference as well. There are many different investment portfolios to choose from. For example, these three portfolios look very different but are all examples of a wise investment.
2. Watch Out for Frauds
Fraudulent investment schemes are usually rare but can devastate your savings. Books like How to Smell a Rat and The Only Three Questions That Still Count, the New York Times best seller by Ken Fisher, offer some great advice on investing and how to avoid the dishonest money manager. Red flags include an advisor who has control of assets (as in, they tell you where to send the money and write the check for you), and an investing strategy that is “too complicated” to be explained. Honest advisors will clearly lay out their investing strategy for you. There should be nothing murky about it.
3. Pay Off Debt
The one way you can always get a great return on your investment is by paying off debt. Interest from an auto loan or a mortgage takes money away from you without offering anything in return. In some cases, it would be wiser to pay off old debt than to invest in a new portfolio because the debt’s interest rate is higher than the investment would be. A great example of this is college or graduate school debt, which can have interest over 10 percent, and credit cards, which regularly have rates over 15 percent.
By dividing your savings, recognizing scams, and paying off old debt first, you can learn to invest with plenty of security and peace of mind.
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