Ok, so you’ve decided to invest. Now what? Educate and Diversify. That’s where we left off last time. Everyone has heard the phrase don’t put all your eggs in one basket, right? Well, that’s the exact foundation for diversification. The truth is things can change fast. Remember Enron? However, change doesn’t always mean fraud. Some companies have been solid for years but technology and competition and threaten their position. Remember Blockbuster? For those reasons the best practice of investing is to diversify. Strategically place your eggs or hard-earned money into different baskets so that if one breaks, you have several others that can compensate for the loss and you still come out on top.
Enter the education phase. In order to know which baskets are in harmony with your goals there is some research involved. Let’s get into a few principles that can help.
START SMALL
Learn with the training wheels on. There is a seemingly endless array of investment options. Here are some steps to get started.
Assess your goals and write down your acceptable level of risk.
Decide on a company that you trust (for example, your bank, your employer 401k or another recommended brokerage). It doesn’t have to be complicated, start with what is most convenient.
Research the options they have available, ask questions, and read to determine what the terms mean from mutual funds to EFT to REITs to treasury bonds and everything in between.
Decide which investments you’re comfortable starting with based on your level of risk.
Set a small amount per week or month to automatically invest.
Keep learning and adjusting as you go!
CATEGORIES OF INVESTMENTS
Consider investing in different industries. For example, imagine if all of your investments were currently in travel because when you started it was booming. After the pandemic hit, stocks in the travel industry plummeted so you would have lost a substantial amount. To prevent situations like that, invest in a wide range of industries including utilities, government, real estate, healthcare, technology and more. Even during the pandemic, while some businesses are suffering others are thriving. A well-balanced portfolio helps to mitigate the impact during hard times.
TAKE A LONG-TERM APPROACH
Diversification is not a short-term strategy. Resist the urge to sell the minute prices drop.
CONSIDER INVESTMENTS OUTSIDE OF THE STOCK MARKET
Your portfolio is your entire group of financial assets. Assets inside the stock market are just one type of asset. Consider expanding to other assets such as physical real estate, art, coins, peer to peer lending, Bitcoin, private companies and more. There are many opportunities, you simply need to educate and then diversify.
Until next time,
Crystal
Crystal Hicks is an accountant with well over a decade of experience in tax, finance, audit and accounting in New York and Florida. Each week in Money Talks, she’ll share her advice to help individuals to navigate their financial challenges!
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