Now that you are ready to start investing, there are several points you have to consider. The first and most important thing is to define your objectives. In other words, what are you trying to achieve? Many people start investing without first defining their objectives. This is not the right way to start.
The next thing you have to consider is your risk tolerance. Risk tolerance is how you feel personally about taking risks financially and losing money. Your financial advisor should take this into consideration when they advice you. In fact, your investment advisor should ask you a lot of questions.
Your risk tolerance can vary, depending on factors such as age, financial goals, family situation, and income needs. Generally the older you are, the more you want to avoid risky investments. This is because your older years are really meant for consolidating your investments. When you are younger, you have more time for your investments to recover from market volatility, so you can afford to take more risks.
The rate of return on your investment is another point to consider. There are investments which offer guaranteed rate of returns. The downside of this is that the returns may be on the low side, and you may not be able to take advantage of high returns in the market.
Before you start investing, you may want to make a decision whether to use a broker or invest directly yourself. Of course the choice you make will be dependent on your knowledge of investments and investment vehicles.
Many investors work with brokerage companies, mutual fund companies, financial advisors in banks, insurance companies, and independent financial advisors. It is important to note that most of these people work for a commission.
The industry is regulated so that the investor is protected to an extent. As an investor, you of course have to do your due diligence and be knowledgeable about investing.
Many investors choose to open an account with a broker. This can be done online or by physically going to a broker’s office. There is a document called the new account agreement which you have to sign. Again, it is important to do your due diligence and read and thoroughly understand any document you are asked to sign. Responsibilities of all parties should be clearly defined. Ask questions if you need to. Your financial advisor should be willing to answer all your questions.
Are there people out there who will try to take advantage of you? Absolutely! That is why you must ask as many questions as possible, and not take anything for granted. Ask about the fees, liquidity of your investments, penalties for early withdrawal, tax liabilities, etc. You can also ask the financial advisor for references. After all, this is your money!
Another question you need to find out is, “will you be required to put a specific amount of money in your account at predetermined intervals?” This is called dollar cost averaging. Dollar cost averaging is a practice which helps to reduce the impact of market risk.