Investing is the process of purchasing assets whose value will increase over time and will provide returns in the form of income payments or capital gains. In a broader sense, investing can also mean spending time or money to improve your own life or that of other people.

But in the financial world, investing in the purchase of securities, real estate, and other valuable items in search of capital gains or income.

BELOW ARE FEW TIPS

1. Set Yourself Up For Success: Prep Work

To set yourself up for success, build a process that lets you contribute a portion of your paycheck regularly each month. To free up the funds, we strongly recommend you have a minimum of six months’ worth of emergency funds saved up (six times your monthly expenses), your debt is stabilized (no interest-based charges), and you are following a budget plan.

2. Determine your risk tolerance

Investment may be a risky business. Every investor is different in the amount of risk they are willing to take. Of course, big risks can bring big rewards. But think about how you would feel if your portfolio suddenly fell by 20%. If this leaves you feeling stressed, you may need to choose a more predictable investment option.

3. Diversify your portfolio

Remember the old saying about not putting all your eggs in one basket? It holds true for investing. Diversifying the investments in your portfolio can help smooth out risk and score higher returns. This is different from your asset mix. While asset allocation means mixing up your types of investments (i.e. stocks, bonds, cash), diversification is about spreading out your money across companies and industries.

4. Mix your assets

Make your investment interesting (and prosperous). Your investment portfolio should contain multiple asset types, such as cash, fixed income, and stocks. All of these have different benefits. For example, fixed-income investments provide stability, while stocks are designed for long-term growth.

5. Determine your asset allocation

See our sample asset allocation plans above. In general, if you’re a risk-averse investor looking for income and stability, the conservative portfolio with a larger allocation of bonds than stocks may be right for you. But if you’re a long-term investor looking for high-growth potential, the aggressive portfolio with a large allocation of stocks may appeal to you.

6. Decide how much to invest

How much you should invest depends on your investment goal and when you need to reach it.

One common investment goal is retirement. If you have a retirement account at work, like a 401(k), and it offers matching dollars, your first investing milestone is easy: Contribute at least enough to that account to earn the full match. That’s free money, and you don’t want to miss out on it. 

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