To learn informed investing and know how to invest with confidence, most people should divide the topic into two parts: Investing and Investing Basics. By tackling the topics or articles in the following order, you can learn how to invest money as an informed investor without wasting much time and effort.
First, learn basic financial concepts, terminology, and investment basics. Every investment in the world can be evaluated based on just a few simple characteristics. Don’t invest money in anything until you know if it fits your needs for things like safety, liquidity, growth, and income. Only if you invest informedly can you avoid the costly mistakes caused by choosing an investment that is not right for you.
Then, as a primary guide to investing, focus on stocks and bonds because that’s where you’re most likely to invest money in the future. Once you have dealt with these securities, it is time to learn about the investment markets and how to invest in them. If you don’t understand the stock market, for example, your knowledge of stock(s) is of little value in the real world of investing.
Learning all about mutual funds should be your next step and it shouldn’t be difficult now that you know about stocks and bonds. After all, these securities are where most mutual funds invest money for their investors. Mutual funds are where most investors invest their money in stocks and bonds in 401k plans, IRAs, and other accounts. There are thousands of funds to choose from but 99% of them fall into one of 4 general categories.
You should also familiarize yourself with other investments such as money market securities and annuities before moving from the investment guide stage of your education to the investment guide section. In other words, before you can learn to invest thoughtfully, you will need a clear understanding of all the major investment options and how they compare in terms of their core investment characteristics. This is not as hard as it sounds as the world of investments can be condensed into just 4 different asset classes or categories: cash equivalents (safe and liquid investments), bonds, stocks and alternative investments.
Investing is the art of putting together an investment strategy and managing your money at a level of risk within your comfort level. Once you understand the investment end of things, you need a game plan in the form of a complete investment strategy. Asset allocation is the most important part of any strategy; The allocation of your portfolio assets over time will be the main thing that determines your success or failure as an investor. Focus on learning asset allocation: how to invest money (in any ratio) across the four asset classes listed above.
Now you’ll also want to learn how to apply various investment strategies or tools to help offset risk while achieving above average returns on investment. The two important things to understand when starting the learning process are the following. Learning how to invest is easier than you think if you take it step by step in a logical sequence. Second, learning informed investing is actually a two-step process: learn the basics of investing, and then learn to invest.
Don’t be discouraged if you don’t understand something in an investment article you’re reading. Back up and find another article that covers the topic or area that confused you. For example, if you’re confused by an article about bond funds, it’s likely because you don’t understand bonds in general. Most people don’t. Most people don’t get much out of an adventure novel, either, if they start reading on page 47.
Get rid of the fear and anxiety of investing. Learn how to invest well informed.