A proven way to build wealth is through the process of investing. Whether it’s in stocks, bond or real estate, investments that grow in value and pay off through interest, rents, or dividends are the engines of personal financial growth. However, before beginning the investing process, there are several considerations with which individuals should concern themselves. Here are a few.
Goals
There’s a common saying regarding planning: those who fail to plan, plan to fail. When it comes to investing, it’s essential to have the end game in mind. What financial goals are vital for a family? These goals should be in mind before starting to invest and should guide the investment process.
Risk Tolerance
Those who have a great deal of fear when the stock market goes down should invest less of their money in the market. They will be tempted to sell when the market provides a great buying opportunity. Therefore, these folks might want to limit their exposure to stocks while investing in real estate or bonds that bring in more income while hopefully avoiding some of the volatility of stocks.
Time Until Retirement
Those who need to access money within a year or two will probably want to stash the money that they’ll need in a lower-risk investment like a CD or a money market account. While the stock market tends to go up over the long run, there is no guarantee that the market will go up in the next year. Those who are nearing retirement age would also want to cut down their exposure to the stock market to avoid some volatility.
Maintain An Emergency Fund
Regardless of where a person decides to invest, having a nice emergency fund will tend to cut the amount of stress he or she has. Water heaters go out. HVAC systems blow up. It costs money to replace them. By having a nice emergency fund saved up, these events will be less catastrophic when they happen. Those who have an emergency fund will have the cash on hand to fix the problem and be less likely to pull money out of their investments. This is important because time in the market will beat timing the market in most instances.