Investing 101

There are some basics of investing that every investor, should clearly understand. The fundamentals of investing can help you guide through the sometimes overwhelmingly world of financial matters. For investors, who take the time to educate themselves and not make these common mistakes, the payoffs can be significant. The bottom line is that investing is not a game, and not something that can be done randomly (if you want to be successful). For investors who plan carefully, investing can provide you with the extra money you may need. Here are some basics of investing-

• Do you have the knowledge you need?-It is crucial that you can tell a good investment, from a bad one.Beginning investors need to know that the world of investing has its own language. The reality is that if you want to understand this language, you have to spend some time to study it. In order to invest successfully you will need at least, a basic financial education. Remember that knowledge is your primary keystone to successful investing. You find significant investing information online, through books, or other classes offered through community centers and colleges.
• Do you know much you can invest?-The bottom line is that you cannot invest, if you do not have any money. Most people have to work for their money, save it and then invest. Financial experts also advise that you should not have too much debt, before investing. You should pay off your debts first. Then before you invest you need to understand that this should be money that you can afford not to touch, for at least several years. If you are saving to buy a house or a car, or fund an education, in the near future, do not use that money to invest. You should only use money to invest, that you can afford to put into an investment for the long term. In addition, the cardinal rule of investing is that you should only use money you can afford to lose. If losing your money in investments, will devastate you financially, then that is money that you should not be using.
• Do you know about risk and returns?-It is crucial when you buy stocks, bonds or other investments, that you know what a reasonable return is. How much risk do you take? Remember that you will need to take small risks in order, to protect the money for which you worked so hard. You must understand how much risk you are willing to take. In addition, it is important to understand that high risk does not always mean great returns. You must be able to determine if the risk of any particular investment is worth the potential reward. Most investors suffer losses at some point. It is important to not overreact when stock markets fluctuate or other investments seem to dip. You must be able take losses (at least on paper), and understand that investing, is a long term strategy, toward making money. If you cannot then investing, might not be right for you.
• Do you know about diversification?-It is important to keeping in mind that if you want your portfolio to advance, you have to find the right balance between low-volatility and high-volatility assets. You should not put all your eggs in one basket. The intelligent way to do things is known as asset allocation. While some investors find it relatively unexciting, in the long term gives you better results.

Sometimes good investment can be boring. However, an asset allocation means that you are spreading your investment dollars, over low-high risk investments, to increase your potential return.