For new investors unfamiliar with the ins and outs of portfolios, rates of return, diversification and all the rest of it, the idea of putting their hard-earned savings at risk can be very stressful. Even though most of us understand that some degree of risk is inevitable if we want to grow our savings, most new investors spend many sleepless nights wondering if they have made the right decision or if they are in over their heads. They key to peace in this context is to have an advisor like Keith Springer that you can trust, and some clear rules to guide you and to help you evaluate the advice of friends about investing in “the next big thing.” Here are just a few things to keep in mind as a new investor.
Don’t take on more risk than makes you comfortable
As a matter of course, any broker you work with will spend some time developing a risk profile in order to understand the right investments for you. A risk profile reflects the amount of risk that you should reasonably take, and will be based on things like your stage of life, your current savings, your years to retirement, and other factors. When you are young, without a family, and at the beginning of your career, or if you have a very significant income you will be able to accept greater levels of risk because if things go wrong, you will be able to recover. When you are approaching retirement, have limited resources, or significant expenses, a lower degree of risk is appropriate. None of this is to say that you are locked into particular investments, but it should be taken as a general guideline about how much risk you should take on. At times, you may be presented with opportunities that promise significant returns on the investment, but with a considerable risk that you could lose everything that you put into it. You should not automatically discount the possibility, but you should definitely ask yourself if you can afford to lose every penny you invest without compromising your financial goals. If the answer is no, then you should pass no matter how tempted you are.
Invest in what you know
Remember this golden rule – if you don’t understand it, don’t invest in it! It sounds silly, but the truth is that many of us may be tempted to invest in a product, company or region that we know virtually nothing about because friends or brokers have said it was a sure thing. It may be, but the fact is that if you don’t know anything about it, then you will be dependent on other people to tell you when you should buy or sell. Make sure that you are willing to invest the time and energy into learning about the investment opportunity – this will allow you to make your own informed investment decisions. If you are not interested in learning about it, then you will certainly not be interested in following market reports or broader industry trends that could have some bearing on your decisions moving forward.
These simple guidelines will help you to evaluate the investments that your broker recommends or that you are considering on your own.