Throwing your hat into the investment ring is an essential step in building your financial future. Sure, you can make money through your earned income and by taking on side hustles. But true wealth often comes through a diversified investment portfolio.
Are you ready to leverage your capital and accept a certain level of risk for the opportunity of financial reward? If so, it’s time to pay attention to what the pros do. Consider each of them against your situation and get ready to enhance your portfolio today.
Invest in Appreciating Assets
When you think of investments, the first thing that may come to mind is the stock market. While there are many opportunities within the market, that’s not the only way you can beef up your portfolio.
Appreciating assets like real estate are accessible to even the newest of investors. A primary residence is often considered an investment for retirement, and investment properties can be as well. Your local real estate market may just be the entry point to your financial windfall.
If your target investment property is located in a good neighborhood with quality schools and amenities, it’s likely to appreciate. Negotiate a fair purchase price and rent your property to tenants. Use the monthly rental income to cover your debt obligation and finance needed repairs as its value continues to rise.
Be Wary of Investment Fads
Financial TV shows and social media profiles can hype you up about the latest hot stock or cryptocurrency opportunity. But don’t let popularity and a flashy presentation sway your sound judgment.
Social media has added new panache to previously unknown “experts” or “gurus.” Be skeptical of the intentions of groups or individuals who promise sky-high returns with little supporting evidence. They may not have the training or insight they want you to believe they do.
It’s doubly important to understand the financial research and earnings projections backing up the opportunities’ claims. Do your due diligence in researching the opportunity and give yourself space to make sound judgments.
If you have a limited investment budget, it would be unwise to dedicate it to a risky investment. If you decide that a newer or potentially cutting-edge investment is right for you, be prepared for it to tank.
Once you’ve removed the emotion from your calculations, it’s easier to make decisions based on your real-world circumstances. When selecting an investment, you have to consider your personal goals and risk tolerance.
Identify Your Risk Tolerance
Speaking of risk tolerance, it’s important to acknowledge that all investments involve risk. To have your money work for you, you need to become comfortable losing money from time to time. However, you can be reassured that low investment prices can effectively mean you’re buying at a discount.
For example, if a stock price decreases, your purchasing power improves on new shares as well. In real estate, a depressed market can mean you’re buying homes on the cheap. With time, measured improvements, and patience on your side, you can turn a hefty profit on the right property.
Consider your tolerance for risk before you buy. In the market, review the three-, five-, and 10-year returns on index funds to see historical returns. Real estate can be slightly less volatile but is no less impacted by economic conditions.
Smart investors pay attention to national and world economic news to get a read on what’s ahead. You cannot predict the future beyond a shadow of a doubt; however, you can make sound judgments by considering the data at your disposal.
Consider Debt to Be a Tool
Do you have hundreds of thousands of dollars sitting in your savings account, ready to deploy for investments? If your answer is no, you are not alone. It’s unlikely the average investor has piles of cash ready to sink into an investment. That’s why having excellent credit is essential for investing.
Good credit, paired with your smart investment selections, can help you access investment strategies that can change your financial future.
Even though it might feel daunting to take on debt, it is important to consider what assets may or may not be balancing your ledger. Assuming $150,000 of debt on a rental home also provides an offset of whatever value the home has on the housing market on any given day.
So even in a poor housing market, where the same home is suddenly worth $100,000, there is only a $50,000 debt risk. In contrast, $150,000 of debt in shares of an untested startup company does not have a tangible correlating asset. If the startup company folds, your shares have no value and therefore do not offset your debt.
Understand Your Exit Strategy
At some point, you’re going to want to collect the earnings you have made from your smart investments. While your portfolio may have grown into the six or seven figures, that money isn’t real until you sell.
Review your income expectations from your investments and balance them against your potential tax obligation. It may be worthwhile to meet with a tax advisor to help determine an exit point that will minimize your tax obligation.
There are numerous strategies for lessening the amount you’ll pay in taxes. For example, if you’re nearing retirement age, there may be opportunities to transfer certain assets to your heirs before retirement.
There are many ways to create an exit strategy, and every solution will be unique. Think about how you’ll handle each of your investments for the entire time you plan to hold them.
Tackle this task when you first acquire an investment so you’ll have a clear view of your plan from day one. Review your strategy annually and make adjustments as necessary. A tax advisor would help you with a plan of action tailored to your assets and individual situation.
Enhance Your Portfolio
There’s no better day to start investing than today. No matter the financial situation, there are always opportunities to tap into. Pay attention to the world around you.
You could be inspired by social media or notice investment properties for sale during a neighborhood walk. Research before you commit to a new investment and stay engaged for the long haul.
If you’re unsure of where to start, contact a trusted professional in the field you’re considering investing in. Expert advice can’t be beaten and is often more affordable than you think. Before you know it, your portfolio will be bursting with opportunities, and your bankroll could follow suit.