Considering the myriad of factors influencing today’s economic realities, one simple truth has emerged. It has become not only desirable, but also necessary to invest money wisely if you have any hope at all of securing a comfortable future. Saving alone is not enough. In order to build wealth, you must learn to put that hard-earned savings to work for you. Deciding to invest should be a simple decision. Deciding where to invest is a bit more complicated.
One Size Doesn’t Fit All
The “one size fits all” approach is not at all useful when it comes to investing. Every investor comes to the table with a unique set of goals, dreams, constraints and time availability to go along with the size of their wallet, bank accounts and financial liabilities. What works for a single person in their 40s with a high six-figure income and low debt will probably not work well for a married parent of young children with a large mortgage and credit card debt.
Sometimes, the range of investment choices can seem overwhelming. How is one supposed to choose between stocks, bonds, REITs, mutual funds, real estate and crowdfunding opportunities? Even within the category of real estate alone – there are many options available to the investor looking to enter the field. There is residential real estate and commercial real estate. There is industrial property and vacant land – REITs, real estate mutual funds, single-family housing and multi-family, office parks, retail shopping centers and mixed-use properties. It may sound like there are a lot of things to consider when evaluating real estate as an addition to your portfolio–and there are! So before investing in real property, be sure you understand all the pros and cons the different types of real estate before dismissing or advancing on an investment. Further it’s also a good idea to make sure that any potential investments align with an honest self-appraisal.
What Kind of Investor Are You?
Unless you’re planning on becoming a full-time investor – in equities, real property or both – you will probably never have the time to learn everything you need to know in order to make critical decisions on your own on a regular basis. Still, novice investors should do everything they can to resist the temptation to follow the latest “hot tips”, “hot markets” “insider scoops” and “high-yield returns”. Focus instead on conducting an honest self-appraisal of your own finances, risk tolerance and investment goals. Once you understand what “kind” of investor you are, you’ll be better equipped to zero in on the investment vehicles nest suited to your investor profile.
What Do You Have Time For?
Time is one critical factor in assessing your investor profile. How much time do you have to evaluate properties and funds or function as a property manager or landlord? If the answer to this question is “not much”, you will probably be better off investing in a REIT or crowdfunding platform like addy. Also, how long do you plan to hold onto the investment? A house flipper, for example, is working on an entirely different time frame than someone looking to build a retirement portfolio.
What Do You Have the Tolerance For?
Another critical factor is risk tolerance. While some investments are inherently riskier than others, you cannot assess risk without taking your own financial personality into consideration. Some people are naturally more risk adverse than others. It all comes down to knowing and understanding your investor profile and matching investments with your goals. Think less about finding the “silver bullet” investment and more about the “right” investment.
Turn to the Experts
Choosing a brokerage firm or crowdfunding platform to work with is one of the most important financial decisions you will make, as they can offer informed advice, and an expert evaluation of what good investing looks like for you. Choose wisely and make sure you partner with professionals who share your philosophy, ethics and goals. The right investment for you is the one in sync with your personality, your values, your bank account, risk tolerance and overall strategy for short and long-term success.