How to choose Investments?
You want to choose investments that will meet your financial goals. To do that, it’s important to understand what your investment choices are and how different types of investments work. Risks and potential returns vary greatly from investment to investment.
Evaluate Your Risk Tolerance and Needs
As a general rule, the younger you are and the more time you have to reach a financial goal, the more investment risk you can afford to take. That means, for example, when you’re in your twenties and just starting your career, you may be able to take a more aggressive approach to investing for long-term goals. Aggressive investing means choosing investments that have the potential to provide greater return over an extended period. But these investments also expose you to more risk because their prices are volatile, which means they might move up and down rather quickly.
On the other hand, investors closer to retirement tend to be more conservative since the portfolio may not have a chance to recover from a market downturn before they need to start drawing on your retirement assets. Retired individuals tend to be more conservative and generally strive for a consistent stream of income to cover at least a portion of their living expenses.
But these are just guidelines. No single approach to choosing investments will work for everyone or will be right for every situation.
Do your Due Diligence before investing
- There’s lots of information about the investments that we can assist you understand and evaluate. Regulators require that certain information be disclosed to investors through documents such as mutual fund prospectuses, corporate filings for stock issued by public companies that trade on the major stock markets and prospectuses or offering statements for bonds. In addition, you can find a wealth of real-time and historical market data for stocks, bonds, mutual funds and other securities on FINRA’s Market Data page.
- The sales charges for buying and selling the investments, as well as any fees for selling within a certain time frame, should be clearly explained. FINRA’s Fund Analyzer can help you compare up to three different mutual funds, classes of a single fund or exchange-traded funds.
- Securities should be filed with the SEC or your state’s securities regulator, and the salespeople who sell them are licensed by FINRA. Use the SEC’s EDGAR Databases to check whether the investments are registered, and use FINRA BrokerCheck to confirm that a broker is licensed to sell securities.
- Prior to investing in thinly traded or over-the-counter securities, we encourage you to consult a financial professional as these securities carry additional risk.
- You must understand the risks of the investment and how it works.
(FINRA = Financial Industry Regulatory Authority, www.FINRA.org)