7 Tips For First Time Investors Who Want To Make A Profit

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You’ve probably heard the old saying, The best time to plant a tree was 20 years ago. The second best time is now but when it comes to investing in the stock market, the saying should be, The best time to invest was 20 years ago and the second best time is now! You see, if you can’t remember the Dot-Com Crash or when the housing bubble burst in 2007 and 2008, then you are too young to have ever invested in anything!

Learn The Basics


Researching investments is hard to do. With so many options and so much confusing terminology, investing can be overwhelming—but it doesn’t have to be.

Before you dive in headfirst, make sure you know how your money works and what role it plays in your overall financial health. (For a quick overview of investment basics, see Getting Your Feet Wet.) Remember that knowledge is power; make sure you understand everything before taking the leap.

1) Know Your Choices


All investments are not created equal. There are literally thousands of ways to invest your money. The sheer number can be daunting, but it’s important to understand that each investment has different risks and rewards attached to it.

Make sure you understand your investment choices so you can make an informed decision about which type is right for you.

2) Have An Emergency Fund


Many people who invest their hard-earned money think that they need to make all of their investments in one large lump sum. While this can certainly be a viable option, it is not always ideal.

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It’s best to have a diversified investment portfolio so that you are not making all of your eggs in one basket. Having at least six months of living expenses saved in an emergency fund will help protect you from life’s unforeseeable events.

3) Have More Liquidity Than You Need


When you invest, you’re effectively using your money to purchase shares in a company. The amount of investment dollars go up as stock prices rise, but it also decreases when stock prices go down.

That means that having more cash available than you plan to invest will keep your account from dropping below a certain level if stocks take a tumble.

4) Set Realistic Goals


When you’re first starting out, it can be easy to set goals that are way too lofty. It’s important to set goals that challenge you, but that you also have a shot at achieving.

You don’t want to get discouraged if you fall short of your initial targets. Instead, build a strong foundation from which you can grow by setting achievable goals and then re-evaluating them as time goes on.

5) Educate Yourself On Risk Tolerance


Investing isn’t a sure thing. Even if you do your research and select investments that have proven to be strong, you can still lose money. If you don’t have a high-risk tolerance, it’s best to stick with safe investments like savings accounts and certificates of deposit (CDs).

When selecting which stocks or mutual funds to invest in, make sure you understand their level of risk before proceeding with your investment plan.

6) Create A Sound Strategy And Stick To It


Before investing in anything, make sure you know what your target rate of return is, and how much risk you’re willing to take. You should have a precise investment strategy that outlines your goals and helps you mitigate risks.

There are plenty of online tools to help with portfolio creation. Then stick to it; don’t stray from your plan.