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Financial Navigating in the Current Economy: Ten Things to Consider Before You lot Make Investing Decisions

Invest Wisely: An Introduction to Mutual Funds. This publication explains the basics of common fund investing, how mutual funds work, what factors to consider before investing, and how to avoid common pitfalls.
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Financial Navigating in the Current Economy: Ten Things to Consider Earlier You Make Investing Decisions

Given recent market events, y'all may be wondering whether you should brand changes to your investment portfolio.  The SEC'due south Office of Investor Education and Advocacy is concerned that some investors, including bargain hunters and mattress stuffers, are making rapid investment decisions without considering their long-term financial goals.  While we tin't tell yous how to manage your investment portfolio during a volatile market, nosotros are issuing this Investor Alert to requite yous the tools to make an informed determination.  Before y'all make whatsoever decision, consider these areas of importance:

1.         Draw a personal financial roadmap.

Earlier yous make any investing decision, sit down and have an honest wait at your entire financial situation -- especially if you've never fabricated a financial plan earlier.

The showtime stride to successful investing is figuring out your goals and take chances tolerance – either on your own or with the assist of a fiscal professional.  There is no guarantee that y'all'll make coin from your investments. But if you get the facts nearly saving and investing and follow through with an intelligent program, you should be able to proceeds financial security over the years and enjoy the benefits of managing your money.

ii.         Evaluate your comfort zone in taking on gamble.

All investments involve some degree of risk. If you intend to purchase securities - such as stocks, bonds, or mutual funds - it's important that you understand before you lot invest that you could lose some or all of your coin.  Unlike deposits at FDIC-insured banks and NCUA-insured credit unions, the money you invest in securities typically is not federally insured.  You could lose your principal, which is the corporeality you lot've invested.  That's true even if you purchase your investments through a bank.

The reward for taking on risk is the potential for a greater investment return. If you lot have a financial goal with a long time horizon, y'all are likely to make more money past carefully investing in asset categories with greater hazard, like stocks or bonds, rather than restricting your investments to assets with less risk, like greenbacks equivalents. On the other mitt, investing solely in greenbacks investments may be appropriate for short-term fiscal goals.  The principal business concern for individuals investing in cash equivalents is inflation hazard, which is the risk that inflation will outpace and erode returns over time.

Federally Insured Deposits at Banks and Credit Unions -- If you lot're not sure if your deposits are backed past the full faith and credit of the U.S. government, it's piece of cake to find out.  For banking company accounts, go to www.myfdicinsurance.gov.  For credit union accounts, get to http://webapps.ncua.gov/Ins/.

iii.         Consider an appropriate mix of investments.

By including asset categories with investment returns that movement up and downwards nether different market place weather within a portfolio, an investor can help protect against significant losses.  Historically, the returns of the three major asset categories – stocks, bonds, and cash – have not moved up and down at the same time.  Market conditions that cause ane asset category to do well often crusade another asset category to have average or poor returns.  Past investing in more than than one nugget category, you'll reduce the gamble that you'll lose money and your portfolio'south overall investment returns will have a smoother ride.  If one asset category'south investment render falls, you lot'll be in a position to counteract your losses in that nugget category with ameliorate investment returns in some other asset category.

In addition, asset allocation is important considering it has major impact on whether you volition meet your financial goal.  If y'all don't include enough risk in your portfolio, your investments may non earn a big enough return to come across your goal.  For case, if y'all are saving for a long-term goal, such equally retirement or higher, well-nigh fiscal experts agree that yous volition likely need to include at least some stock or stock mutual funds in your portfolio.

Lifecycle Funds -- To accommodate investors who prefer to use one investment to save for a particular investment goal, such equally retirement, some mutual fund companies have begun offering a production known as a "lifecycle fund." A lifecycle fund is a diversified mutual fund that automatically shifts towards a more bourgeois mix of investments as it approaches a particular yr in the future, known as its "target date." A lifecycle fund investor picks a fund with the right target date based on his or her particular investment goal. The managers of the fund so brand all decisions virtually asset allocation, diversification, and rebalancing. Information technology'south piece of cake to identify a lifecycle fund because its name will likely refer to its target date. For example, you lot might come across lifecycle funds with names like "Portfolio 2015," "Retirement Fund 2030," or "Target 2045."

4.         Be careful if investing heavily in shares of employer's stock or any individual stock.

One of the most important ways to lessen the risks of investing is to diversify your investments. Information technology's common sense: don't put all your eggs in ane handbasket.  By picking the right group of investments within an asset category, yous may be able to limit your losses and reduce the fluctuations of investment returns without sacrificing too much potential gain.

You lot'll be exposed to significant investment risk if y'all invest heavily in shares of your employer'south stock or whatever individual stock.  If that stock does poorly or the company goes bankrupt, you'll probably lose a lot of money (and possibly your chore).

5.         Create and maintain an emergency fund.

Most smart investors put plenty money in a savings production to encompass an emergency, similar sudden unemployment.  Some make sure they have upwards to six months of their income in savings and then that they know it will absolutely exist in that location for them when they demand it.

6.         Pay off high involvement credit card debt.

There is no investment strategy anywhere that pays off too as, or with less risk than, but paying off all high interest debt you may have. If you lot owe money on high involvement credit cards, the wisest matter you lot can do under any market place conditions is to pay off the balance in full equally quickly as possible.

7.         Consider dollar cost averaging.

Through the investment strategy known as "dollar price averaging," you can protect yourself from the chance of investing all of your money at the wrong fourth dimension by following a consistent blueprint of adding new money to your investment over a long menstruum of fourth dimension.  By making regular investments with the same amount of coin each time, yous volition purchase more of an investment when its price is low and less of the investment when its price is loftier.  Individuals that typically make a lump-sum contribution to an private retirement account either at the terminate of the calendar year or in early April may desire to consider "dollar toll averaging" equally an investment strategy, especially in a volatile market.

8.       Take reward of "gratis money" from employer.

In many employer-sponsored retirement plans, the employer will friction match some or all of your contributions.  If your employer offers a retirement programme and you do not contribute enough to get your employer's maximum match, yous are passing up "free coin" for your retirement savings.

Continue Your Money Working -- In most cases, a workplace programme is the well-nigh effective style to salve for retirement.  Consider your options carefully before borrowing from your retirement program.  In particular, avoid using a 401(k) debit card, except as a last resort.  Money you infringe at present will reduce the savings vailable to grow over the years and ultimately what you lot have when you lot retire.  Likewise, if you lot don't repay the loan, you may pay federal income taxes and penalties.

ix.         Consider rebalancing portfolio occasionally.

Rebalancing is bringing your portfolio back to your original asset allocation mix.  Past rebalancing, you lot'll ensure that your portfolio does not overemphasize one or more asset categories, and you'll return your portfolio to a comfortable level of risk.

Stick with Your Programme: Buy Depression, Sell High -- Shifting money away from an asset category when it is doing well in favor an asset category that is doing poorly may non be easy, but it can be a wise move.  By cutting back on the electric current "winners" and adding more of the current so-called "losers," rebalancing forces y'all to buy low and sell high.

You can rebalance your portfolio based either on the agenda or on your investments.  Many financial experts recommend that investors rebalance their portfolios on a regular time interval, such equally every six or twelve months.  The advantage of this method is that the agenda is a reminder of when you should consider rebalancing.  Others recommend rebalancing only when the relative weight of an asset form increases or decreases more than than a certain percentage that yous've identified in accelerate.  The advantage of this method is that your investments tell you when to rebalance.  In either case, rebalancing tends to work best when washed on a relatively infrequent basis.

x.       Avert circumstances that tin atomic number 82 to fraud.

Scam artists read the headlines, likewise.  Often, they'll use a highly publicized news detail to lure potential investors and make their "opportunity" sound more legitimate.  The SEC recommends that you ask questions and check out the answers with an unbiased source earlier y'all invest.  Always accept your time and talk to trusted friends and family members before investing.

* * *

For more detailed information near topics discussed in this Investor Alert, please check out the post-obit materials:

• Inquire Questions

• Beginners' Guide to Asset Resource allotment, Diversification and Rebalancing

• Get the Facts on Saving and Investing

• Invest Wisely: An Introduction to Common Funds

• 401(k) Debit Cards: What You Might Non Know

http://www.sec.gov/investor/pubs/tenthingstoconsider.htm

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Source: https://www.sec.gov/investor/pubs/tenthingstoconsider.htm

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