How to Avoid Losing Money on Investments: 7 Best Practices
Investing your hard-earned money can be a little daunting. Most investors have two goals: these are to make money, and not lose any money. The important question is how do you avoid losing money on investments? The answer is quite simple. You invest smart and don’t put all of your eggs in one basket.
Diversifying is one of the most important strategies when it comes to any investment portfolio. If an investment doesn’t perform as you had hoped, then you still have others that do and can help to cover the loss.
As long as you are investing wisely, you should see your money grow over time. Here are seven best practices for how to avoid losing money on investments:
1. Have a clear set of investment goals
By setting goals for your investments, you will be able to understand exactly how well they are performing and know how much risk you should be looking to undertake in the future.
These goals can be very helpful for you in the long run, as they will help to guide you and prevent you from making any rash decisions. With the right goals, you can learn how to avoid losing money on investments.
2. Identify an investment timeline
Knowing how long you intend to invest can be very important as you plan your investment portfolio. Having a clear idea of when you will need to have your assets liquid again will have an impact on the type of investment that you intend to make.
If you are planning to buy a house in a few years then shares in a company are not the best option for you. You will need to stick to a savings account with high interest and ease of access. Alternatively, if you are planning for your retirement in 30 or 40 plus years, then you can overlook the inevitable ups and downs of the stock market and concentrate on long term results. These will often have a better chance of beating inflation and give you the return that you need well into retirement.
3. Protect yourself from losing money
Once you have identified a timeline and your goals it is time to think strategically. You will need to put together a plan that is both secure and well researched. You don’t want to fall for any high-risk investments that could wipe you out financially.
It is best to start with low-risk investments such as GICs. Then, move to medium risk before even considering high risk. You should always have a base level of low to medium risk investments that will achieve your goals. This will help you avoid losing money on investments.
Any money that you invest in a high-risk investment should be surplus to your goals and you should be fully prepared to recover should it not perform as you hope.
4. Diversify your investment portfolio
This is the magic word. Diversifying your investments will give you the greatest chance of a return and still allow you to take on some increased risk. Diversifying is when you spread your money across different investment types and sectors that won’t be directly affected by one another.
5. Talk to an investment professional
You might think that you can go it alone, and you certainly can. Only you are missing out on a great opportunity if you do. Professional investment advisors have decades of experience and are often aware of opportunities that you won’t have heard of. They are extremely good at their jobs and will be able to tailor an investment profile that will give you the greatest return.
Another great advantage to having a professional handle your investments is that you won’t need to give it nearly as much attention. Your time is valuable and if you can have someone with more experience and skill manage you money for a small fee then it will free you up to enjoy all of the rewards that your investments continue to provide.
6. Don’t lose money over hot tips
These are always to be taken with a grain of salt. As an investor, you may hear about a stock price that is about to jump up. This kind of tip can lead to success or ruin. The last thing that you want to do is back the wrong horse based on rumour. You must be smart about your investments and stick to the plan. This way, you will avoid losing money on investments due to rash decisions.
7. Relax and think about other things
If you are constantly watching the stock price of your investments you are going to lose sleep. You really need to trust yourself and your investments to do their thing in the time you have planned for them. This goes double if you have engaged a professional investor.
The best way to avoid losing money on investments is to stay calm and keep your nerves. You should relax and try to enjoy other aspects of your life safe in the knowledge that you have made the right long term decisions for your financial future.