- 1). Set your personal goals before you invest the first dollar. The length of time you have to achieve them will determine how the money is to be invested. For example, if you are saving money to invest in your first house, you have a shorter time frame than if your goal is to save for retirement. It will help you decide how much you will need to put away and it will determine how the money is to be invested.
- 2). Determine the level of risk you are willing to assume based on your tolerance as well as the length of time necessary to reach your goals. Remember the old adage, "The greater the risk, the greater opportunity for reward." But that must be tempered if you are basically risk-averse. No investment adviser worth his salt would recommend investments that would cause you to lose sleep over periodic downturns in the market.
- 3). Diversify. While owning a short list of stocks will lead to potentially large gains or losses, the savvy investor will have his money in different types of assets that react differently in the face of changes in the economy. By doing this, you will reduce risk while raising the likelihood of meeting your investment goals.
- 4). Soak up as much knowledge about the stock market as you can. As a beginning investor, you'll never do too much research. You'll first be exposed to the different ways you can invest your money, and don't be afraid to rely on experts. For instance, investment managers of leading mutual funds are in the business of amassing stock for many companies based on the fund's unique characteristics. In essence, mutual funds can provide you with more diversification than if you were to buy individual stocks on your own.
- 5). Look at your investment records at least once each year to see if you have been on track, and make adjustments based on your analysis. You'll find that an investment portfolio is constantly changing, which leads to you modifying its content.
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