By Charlestien Harris, Retired Financial Counselor at Southern Bancorp
August is National Investor Month – who knew? Well, now you do! This month is dedicated to celebrating the art of investing and recognizing those who actively manage their financial futures. It’s a great time to take a closer look at your investment goals, evaluate your risk tolerance, and consider ways to diversify your portfolio.
Before diving into the world of investing, here are a few important steps to consider:
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1. Get Your Finances in Order
Start by understanding your personal financial situation. Know your total income, expenses, and any outstanding debt. Before investing, aim to save at least three to six months’ worth of living expenses in a readily accessible savings account. This safety net can help you handle unexpected events without needing to withdraw from your investments prematurely.
2. Set and Define Your Investing Goals
Successful investing begins with planning and prioritizing. Know what you’re investing for – whether it’s retirement, a home, or your child’s future education. Clearly defined goals will help you develop a solid investment plan and stay on track.
3. Understand Your Risk Tolerance
Investing always involves some level of risk. As a potential investor, it’s important to know how comfortable you are with the possibility of losses in exchange for potentially higher returns. High-risk investments often offer greater returns, while low-risk investments tend to be more stable but yield lower returns.
4. Choose Your Investment Approach
There are two main approaches: active and passive investing.
Passive investing involves buying and holding investments that track a broad market index, such as the S&P 500, using index funds or exchange-traded funds (ETFs). This method is often recommended for beginners due to its simplicity and lower fees.
Active investing involves selecting individual investments or mutual funds managed by professionals who aim to outperform the market.
5. Select Your Investment Portfolio
Your portfolio selection should be organized and well-researched. If you have questions or concerns, seek advice from a qualified investment professional. Use a vetting process to ensure you’re receiving reliable guidance – consider reaching out to professional associations and ask family or friends for referrals.
6. Diversify Your Investments
Diversification is a strategy to reduce risk by spreading investments across various asset classes, industries, geographies, and types. In simple terms: don’t put all your eggs in one basket. Diversifying helps protect your portfolio from significant losses if one area underperforms.
7. Invest Consistently and Monitor Your Portfolio
Try to invest a fixed amount regularly, regardless of market fluctuations. This strategy can help reduce risk and build wealth over time. Regularly review and adjust your portfolio to ensure it aligns with your goals and risk tolerance. Market performance can shift your asset allocation, so stay vigilant.
8. Keep Your Emotions in Check
Avoid making impulsive decisions based on market ups and downs. Stay patient and disciplined. Continuing to learn about investing and market trends will help you make informed decisions. Understanding your risk tolerance can also prevent rash choices that may harm your financial progress.
9. Consider Fees and Tax Implications
Be aware of any fees associated with your investments, and opt for low-cost options when possible. Understand the tax implications of your investments, and consider using tax-advantaged accounts like IRAs or 401(k)s. Once again, don’t hesitate to seek guidance from a qualified financial advisor, especially when you’re just starting out.
Investing can feel intimidating, but it doesn’t have to be complicated. Taking the time to understand investment terms and options can help you become a successful investor. Always do your homework, and if you’re unsure about the details, consult a certified investment professional for peace of mind.
For more information on this and other financial topics, feel free to email me at charlestienharris77@gmail.com or write to me at P.O. Box 1825, Clarksdale, MS 38614.
Until next week – stay financially fit!
Charlestien Harris is our financial contributor, a retired financial expert with Southern Bancorp Community Partners.
