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The world of investing is full of complex jargon and analytical processes, which are confusing to most Americans. A 2015 survey from TIAA-CREF showed that over 50 percent of investors believed that higher risks meant bigger returns, and another 50 percent believed that short-term performance was the most important evaluating factor. However, those are both misconceptions that are tied to negative outcomes. These are important tips for making smart investments in your future.
1. Buy stocks to increase your future income potential. Most people who shy away from stocks assume that they are too risky. Although some companies fail, others succeed more than investors can imagine. For example, Amazon’s shares were priced at $18 each when the company first went public in 1997. If you had invested about $100 then, your investment would be worth nearly $50,000 now. The key is to start by diversifying your investment portfolio. Also, pick the right types of stocks for your needs.
2. Use both stocks and bonds to strengthen your portfolio. Bonds are similar to loans. You lend money to an institution with the agreement that the entity will repay the initial sum plus interest. Since there is a contract outlining how much you will be paid, bonds are considered safer than stocks. Investing experts recommend using bonds more than stocks if you are nearing retirement age. To determine a fair investment balance between stocks and bonds, experts recommend subtracting your age from 100. Invest your current age in bonds and the remainder in stocks. For example, a person who is 30 years old would invest 30 percent of her money in bonds and 70 percent in stocks. A person who is 70 years old would invest 70 percent of his money in bonds and 30 percent in stocks.
3. Give your investments ample time to mature. As a rule, you should only invest money that you will not need for several years in stocks since they rise and fall. If you need money and your stocks are not doing well, having to sell them soon after acquiring them could be detrimental but necessary. Set long-term goals for cashing in on your stocks. For investments that perform poorly over time, analyze them to determine what has changed. You may need to reconsider that investment if the company has gone through internal structural changes. Plan to keep any bonds until their maturity date. If you must sell a bond early, be aware that interest rate changes can reduce its value.
4. Familiarize yourself with market fluctuations. Market fluctuations are scary to new investors. However, you will become more comfortable with your investment decisions if you watch the market daily and understand changes. Experts recommend using a benchmark to compare stock performance. For example, when a stock drops by 10 percent in comparison to its benchmark after a streak of performing well, it is time to analyze the company. If the company has not experienced major changes, the stock may be going through a normal process of dipping and rebounding. As mentioned previously, major company changes warrant a reevaluation of a stock’s place in your portfolio. If you are new to investing and experience a quick market drop, be patient. With a diverse portfolio that is planned for long-term success, you are more likely to reach your goals.
5. Utilize other types of investments. Money market accounts and certificates of deposit are useful for short-term savings. With attractive interest earnings, these accounts give you ways to keep your funds secure. For smart long-term investments, consider commodities and real estate. Funds that focus on renewable energy, precious metals and real estate tend to do well over long periods despite market fluctuations. If you use alternative investments, be sure that they do not account for the majority of your portfolio.
With these helpful tips, you can improve your chances of a comfortable retirement. According to surveys from Towers Watson and other research firms, most Americans are not financially prepared for retirement. As healthcare costs continue to rise and the future of inflation is uncertain, every American must start preparing by employing smart investment tactics.
About Agora Financial
Agora Financial is part of The Agora, Inc. The parent company was founded in 1979, and Agora Financial was formed in 2004 in Baltimore, Maryland. After a series of accurate and insightful investment publications, the parent company decided to start its investment branch. Agora Financial is known for reporting crucial investment data before mainstream publications discover it. People who followed Agora Financial knew about the credit, tech and housing bubbles before most people knew. The company prides itself in helping Americans avoid being blindsided by financial disasters.
Agora Financial offers investment education, economic commentaries and financial analyses in its many videos, conferences and webinars. While some publications are paid, others are free. Authors of written material provide unbiased information using facts and statistics. As a company that is 100 percent independent, Agora Financial does not accept money from companies or investors. The company publishes pieces by individuals with proven success records and seasoned investors who are not afraid to make bold predictions. Some of the editors have been praised by CNBC, Financial Times, Bloomberg, Reuters and many other top finance publications.
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