Last week I mentioned that taking risks can pay off when it comes to investing, especially when you’re young. Time can smooth out volatility and gives you a chance to adjust your investment strategy if its not working. However, just as important as taking smart risks is knowing when not to take them.

You’ve earned your money so take the time to avoid losing it over bad investments and schemes.

Investing Risks

For most people, investing in the stock market is a solution for a long term goal. The fluctuation of the market smooths out when looking at the big picture. Historically the stock market has had average returns of about 11%. When you factor in the powers of compound interest and regular contributions, they can be enough to help people meet their retirement goals.

However too many people confuse investing with gambling. They get into day trading because they think they can make money easily. They buy these package and follow systems, trading constantly, hoping for a big win.

Anytime someone tries to sell you on a get rich scheme with investing, you have to ask yourself if they make money from you signing up from the course or system. Ask for references from previous customers to see how they are doing, don’t just fall for the testimonials from their site’s landing page.

If you have tried the get rich quick route and haven’t seen results, knowing when it’s time to quit can protect your finances. You can redirect your resources towards another strategy.

Invest Your Money

Keep to your investment strategy and ignore the distractions. If you’re look for basic investing advice to serve as guidelines are a few to seriously consider:

• Buy Low and Sell High - Don’t let investing become emotional. Sell and buy based on what’s smart, not according to your friend’s prediction.
• Invest for the Long Term - Don’t waste your time trying to chase the latest hot stock. Consider using low cost index funds as the foundation of your retirement portfolio.
• Choose Investments that Reflect Your Goals - If you have a low risk tolerance, then don’t put all of your investment eggs into international small caps. You want to be able to sleep at night, so choose your allocation accordingly.

As you build your investment knowledge and you get more comfortable with it, you’ll see it pay off. Those that don’t get caught up in the hype tend to do much better than those that panic.

Thoughts on Investing

The good news is even if you start of contributing small amounts, with some time you’ll build your net worth and investments. Having a system and sticking to it can do wonders for your accounts’ balances. How many of you are investing (not just for retirement)? What’s your investment strategy? If you’re just getting started, don’t forget to check out my previous posts:

• Investing Basics- Get Started!
• What’s Your Investment Strategy?
• What are Some Investing Risks Worth Taking?

Photo Credit: wsilver

Good Morning Green Panda Friends.  It’s time for the next post in our “Investing: The Ins and Outs of Dividends” series.  Today we are discussing important dividend information for young investors as well as first time investors. Throughout this series we have discussed why we should consider investing in dividends, why companies pay dividends, and when we should not get into dividend investing.  Today we are rounding up all of the bits of information that young investors and first time investors need to know about dividends before you start to invest.

Dividend Investor Help

Dividends can be an easy investment strategy or they can be a very risky investment strategy depending on how we choose to invest in dividends.  The best help that I could give to a young dividend investor would be to use dividends as an equity investment to diversify your investment portfolio.

As with any investment strategy we should never put all of our eggs into one basket.  We should never have only one type of investment option in our portfolio, and we should never have only one type of asset class (cash, fixed income, or equity) in our investment portfolio.  We don’t want to have only fixed income in our investment portfolio because it may be too conservative and we won’t have any exposure to equity investing which gives us growth.  However, at the same time we don’t want to have only dividends or other equities in our investment portfolio because there are risks associated with growth investing.  If we hold only equities in our investment portfolio then we will have no security (aka fixed income investments) to stabilize our investment portfolio during times of market volatility.

Dividend Investing is a great investment strategy because it offers a regular income stream through dividend payouts.  Large companies choose to pay out a portion of their profits to shareholders through dividends.  When we choose to add a dividend investing strategy to our investment portfolio we are essentially purchasing stocks of particular companies either through a Dividend Mutual Fund or by purchasing individual stocks directly.

When we purchase Stocks in a company we are buying a little piece of that company.  We become a stockholder, otherwise known as a shareholder, which means that we own a little share of that company.

The benefit to dividend investing is that it provides the potential for growth within our investment portfolio without adding a lot of extra risk which usually comes with equity investing.  If we are a young investor and we want to add Stocks into our Investment Portfolio we should definitely do so by purchasing a Dividend Mutual Fund.

Dividend Mutual Funds are a portfolio of different stocks and therefore we are already more diversified than if we chose to buy one individual stock.  This investment strategy helps young investors become comfortable with market movements as well as the daily changes in the value of our investments without taking too much risk.

A portfolio of stocks (aka a Mutual Fund) is less risky than buying an individual stock because if one stock looses value another one in our Mutual Fund could gain; this offsets the overall losses in our investment portfolio.  However, if we only have one stock and the value goes down then so does the value of our entire investment portfolio.  As we become a more experienced investor you can research and purchase your own individual stocks through a discount broker account.

Be sure to check out the previous posts in our “Investing: The Ins and Outs of Dividends” series:

New Investment Strategies for the New Year

Why You Should Consider Investing in Dividends

What Dividends Are All About

Why Do Companies Pay Dividends

Are Dividends Better Than Stocks?

When You Should Not Get Into Dividend Investing

Photo by Michael Hodge

You may have already started investing. You selected some investments from your company’s 401(k) and you contribute a certain portion of your paycheck towards the account regularly. You’ve decided that you’d like to get better returns.

How do you know what is too risky and what’s worth taking? What does diversification mean for your portfolio? Hopefully I can give you information to help you find the right solution for you.

Investing Risks – What are They?

First off, why should you take some risks with your investments? Quite simply more agressive investments could lead to bigger gains. Being a young investor presents a great opportunity.

Kristina did a great job of summing it up:

If we are lucky enough to start saving for retirement in our early twenties we can afford to take some risk, as long as we are investing for the long term.  It is very important to understand the time horizon, investment objective, as well as potential risk of an investment before we make an investment purchase.

So you can be more adventurous with your investments to increase your returns.

Invest Your Money Wisely

Diversifying your investments can offset some risk. You want to build your income over time and not let it be subject to extreme volatility that concentrating your investments would bring. How you invest now will be different than how you invest when you’re 5 years from retirement. Usually investors seek aggressive growth in the long term and shift to more stability of their money in the short term. That’s because your goals are now different.

Instead of worrying about income building (which typically has more volatile and risky investments) you’re looking at income stabilization (meaning you won’t get high returns, but you want to have an income stream during your Golden years).

Asset Allocation

When you’re creating your investment portfolio, you’ll likely come across information about asset allocation. Basically asset allocation is a way for you to choose investments that have a chance of increasing your returns without putting your portfolio at great risk. What you actually invest in can vary greatly to what your friends may have. We each have our own risk tolerance so you may seek more aggressive investments than your buddy is a bit more nervous.

Between now and retirement you’ll most likely adjust your investment strategy to reflect your progress and goals. For example, as your net worth builds you may want to consider more ways to diversify your investments, perhaps getting into real estate or starting a business for additional income streams.

Still Be Careful

Just because you have time on your side to smooth out volatility doesn’t mean you want to be reckless with your money. Being wise with your money means looking for more aggressive investments that don’t put your portfolio at risk.

Thoughts on Investing

The good news is even if you start of contributing small, with some time you’ll build your net worth and investments. Having a system and sticking to it can do wonders for your accounts’ balances. How many of you are investing (not just for retirement)? What’s your investment strategy? If you’re just getting started, don’t forget to check out my previous posts:

• Investing Basics- Get Started!
• What’s Your Investment Strategy?

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