When it involves investing, it’s important that you start with your financial goals, time horizon and risk tolerance.

At times in calendar year 2020, the global economy seemed on the verge of collapse. Risk, ruin and enormous opportunity were the big stories of the year. Overall, the year was marked by change, opportunity, calamity and resilience in the financial markets.

Yet, in the financial markets, winners dramatically outweighed the losers, according to Forbes Magazine. Almost overnight, new winners were born in communications, technology, lodging and investments. Innovative technology companies in the S&P 500 Index propelled U.S. markets higher. And, many industries were more resilient than expected, in part because of an unprecedented monetary and fiscal response from Washington.

In light of the unprecedented upheaval, you, like everyone else, want to see their money grow over the long term, but it’s important to determine what investments best match your own unique financial goals, time horizon and tolerance for risk.

To learn the basics of investing, it might help to start at one place, take a few steps, and slowly expand outward.

Begin by Setting Goals

As an investor, your general aim should be to grow your money and diversify your assets. But your investing can take on many different forms.

For instance, it might help you to decide the investing strategies you intend to follow in order to grow your money. Such as whether you are interested in purchasing assets that could appreciate in value, such as equity stocks and funds, or play it relative safe with bonds and cash equivalents.

If you’re interested in investing in bonds, you will receive a steady stream of income over a predetermined time period, after which you expect repayment of your principal.

You might also be interested in pursuing both growth and income, via dividend stocks.

Learning to invest means learning to weigh potential returns against risk since no investment is absolutely safe, and there’s no guarantee that an investment will work out in your favor. In a nutshell, investing is about taking “calculated risks.”

Nevertheless, the risk of losing money—no matter how seemingly intelligent or calculated your approach—can be stressful. This is why it’s important for you to really get to know your risk tolerance level.  When it comes to your choice of assets, it’s important to bear in mind that some securities are riskier than others. This may hold true for both equity and debt securities (i.e., “stocks and bonds”).

Your investment time horizon can also significantly affect your views on risk. Changes in your outlook may require a shift in your investment style and risk expectations. For instance, saving toward a short-term goal might require a lower risk tolerance, whereas a longer investing horizon can give your portfolio time to smooth out the occasional bumps in the market. But again, it depends on your risk tolerance, financial goals, and overall knowledge and experience.

References:

1. https://www.forbes.com/sites/antoinegara/2021/12/28/forbes-favorites-2020-the-years-best-finance–investing-stories/
2. https://tickertape.tdameritrade.com/investing/learn-to-invest-money-17155