Investing Pro Tips
I could use some quick tips on investing. I’m a college senior getting ready to graduate in May with a degree in history. I plan to work full-time for a few years to pay off my college loans, and then I’ll apply to grad school.
My roommate said that I should invest some of my savings in the meantime, to help generate more money for grad school. It sounded like a decent idea, because I’d like to avoid having to take on even more loans for grad school.
What should someone like me know before deciding to invest? I’m a total novice when it comes to investing, but my impression is that it can be pretty risky.
It’s a good thing you’re looking for a second opinion before jumping head first into investment. The short answer is yes. There’s always some degree of risk involved in making capital investments. That’s why knowing your risk tolerance is so important in developing and executing an effective investment strategy. Author Kent Thune at The Balance published a salient article explaining risk tolerance in layman terms. That’s where you should begin your quest for more answers. He succinctly describes the centrality of risk tolerance to any well-intentioned investor, as well as its corollary, risk capacity. Pay close attention to both.
Another recommendation is to heed the open advice from staff at the US Securities and Exchange Commission (SEC). They highlight ten critical things to consider before you make investment decisions. The first thing to do is put together a personal financial roadmap, and the second is to evaluate your risk tolerance. The eight remaining points are equally relevant to your situation, so don’t make the mistake of glossing over them. While certain items on the list won’t be immediately applicable, each and every one of them plays a key role.
Writers at Investopedia released a fairly comprehensive investing guide for beginners that could prove informative, too. Perusing different resources should emphasize just how challenging it is to make sound investment decisions. Successful investors often make the endeavor look much simpler than it really is and many investors can easily succumb to common pitfalls which can include investment fraud. Lawyers like Howard Fensterman, who specializes in trying cases dealing with financial malpractice and healthcare law, can help in dealing with these difficult situations.
Paramount to any aspiring investor is having a well-conceived investment strategy. There’s no shortage of strategies to assess, with your unique scenario in mind. Fortunately, writers at The Wall Street Survivor published an overview of five common investment strategies. Examples include value investing, income investing, growth investing, small-cap investing, and socially responsible investing. Each type has a host of pros and cons to weigh. You’ll have to decide for yourself, whether any of them truly appeal to you. Don’t be afraid to look into alternative strategies, but do your research on any you’re considering. If you get to the point where you’re willing to dedicate the time to play the game, research what successful investors have done, and see if their strategies might work for you. You can even go as far as creating an iron butterfly option which requires assembling a bull put spread with a bear call spread to create a limited loss/profit opportunity.
Everyone brings different preferences and driving perspectives to the table. Commit to some honest self-reflection before making any decisions. And don’t underestimate the value of consulting a financial advisor.
“Never depend on a single income source. Make investments to create a second source.” -Warren Buffett