(This is a guest article by Jeff Roberts*)
So you’ve done it... you landed that new job, and are well on your way to becoming the financially responsible adult your parents always dreamed of. And now for the first order of business - how to spend that newly fattened paycheck. Sure, you could buy gold and jewelry, a phone that does everything short of making coffee, or a new wardrobe to make sure you’re the snazziest accessory in your corner office. And while buying like there’s no tomorrow certainly holds an immense appeal, spending all of your extra earnings every month is a surefire way to end up in debt fast. After treating yourself to a few luxuries, it may be time give some serious thought to using your money more wisely. Now is the perfect opportunity to develop and begin to grow an investment portfolio. Think of it as a way to ensure that your money is making more money.
A portfolio is a collection of mixed investments. The assets within your investment portfolio can include everything from stocks and bonds to gold certificates and real estate (Or anything else that is expected to retain value long term). In essence, developing and building your portfolio is the most important part of diversification; the key to limiting your risk and maximizing your return. But if you’ve never invested (or, as is the case for many young Americans, even saved) before, the idea of building a portfolio can seem like a daunting task. The key, then, is to take it slowly; learning as you go which options are the best for you. There are, however, some basic guidelines that can help just about any budding investor:
Start with a goal
Knowing where you want to be is an essential first step in deciding how to begin. Of course, your investment goals will vary wildly based upon what stage of life you’re in, so you should be prepared to evaluate accordingly. A single person who is out of college and embarking on their first major career choice can afford to be more aggressive and take larger risks than, say, someone who has a family depending on them or is still struggling to pay huge student loan bills.
Money management is an abstract concept that can seem baffling, but everyone has dreams that they want to see realized. Come up with a concrete goal that you’d like to achieve, and suddenly setting aside money for your investments won’t seem like as much of a hardship. Motivation is a key ingredient to a successful investment strategy.
Do your research
This is probably the most important part of building a portfolio. Educate yourself on the basics of investing in general. You have to have a solid foundation on which to base your investment decisions. A great place to start is with the company that employs you, as it’s always a good idea to work with something you know a little something about. Read your company’s quarterly and annual reports, and compare them with the competition. (As an added bonus, you will develop a keener understanding of what makes your field of business tick) Use the internet, the newspaper, and the library as your tools for understanding as much as you can about the investment world. Once you have a general idea of how investing works, it’s time to talk to an investment advisor. Ask pertinent questions, and make note of any advice they offer you. You work hard for your money—don’t risk it until you’re sure that you know what you’re doing.
It’s also a good idea to find a mentor; someone who isn’t interested in selling you a product or service. A friend, family member, or coworker who does well in the market may have valuable insight for you.
Know what you can afford
Before you can even begin to assemble your portfolio, you need to determine your risk tolerance. Decide from the very beginning just how much you can comfortably afford every month. Some people like to carve out a certain amount (such as 10% of their paycheck) while others prefer to divert something along the lines of their weekly designer coffee habit.
It’s important to look for investment products that are within your level of acceptable risk. Start with something safe (mutual funds and bonds are usually very forgiving) to help you build confidence. If your employer offers a 401(k), use this as a jumping off point.
Keep in mind that if you keep all of your financial work with one bank, they will usually repay your loyalty with lower fees and better rates.
You’re ready to get started. Remember, this is supposed to be fun—you’re taking an active role in building your wealth. Build a trial portfolio of the stocks you’ve chosen based on your research. Look into respectable online brokerages with affordable fees. (Stick to the ones that don’t require a minimum investment amount to get started) If you’re dedicated… you’ll be surprised at just how quickly you can see your portfolio taking off.
*About the author: This is a guest post by Jeff Roberts, an industry expert on the Gold Market. Jeff also consults for Goldline International.
*Image Credit: Photograph by thinkpanama [via Flickr Creative Commons]
(This is a guest article by Jeff Roberts*)