From knowing where to put your money to perfecting the skill of diversification, there are many things to learn before you can call yourself a savvy investor. There is so much to learn and know that some of the most experienced in the market can even get things wrong. So, whether you’re about to make your very first investment or you’d like to extend your portfolio, let’s take a look at seven things you may not be aware of.
Cost of Fees
Not considering the fees associated with acquiring, owning and selling an asset can prove to be very costly. Expenses and fees can differ between products and companies and even small differences in fees can mount up and become big differences over time. If a product attracts high costs and fees, it must perform better than one with lower costs to generate the same return. Plus, if you take out a long-term investment and want to cash it in early, you’re likely to pay significant surrender fees to do so.
Diversifying
It’s better to diversify your portfolio than choose individual stocks and shares, no matter how attractive they may sound. By choosing the right mix, you’ll reduce the overall risk and have a better chance of limiting your losses and reducing the effects of market fluctuations. You may want to consider diversifying your portfolio with a combination of mutual funds rather than individual stocks and shares. An advisor can help you to decide on the best combination for your portfolio.
FDIC
The Federal Deposit Insurance Corporation (FDIC) does not insure mutual funds. This is because the funds do not qualify as financial deposits, and this stands even if you buy them through a bank, or the fund is in the name of the bank.
Tax Advantages
Some investments, such as employer sponsored retirement plans and individual retirement accounts, provide great tax advantages. You can also benefit from tax advantages by choosing REITs (Real Estate Investment Trusts) which allow you to save 20% on your taxable income thanks to a special tax break announced in the 2017 Tax Cuts and Jobs Act. With the qualified business income deduction on REIT investments, you’ll only be taxed on 80% of your qualifying REIT income.
Risk Factors
If you’re offered the promise of a high return with little or no associated risk, it’s likely to be a con. While every venture carries some degree of risk, none are risk-free. So, if you’re offered something that sounds too good to be true it probably is.
Mistakes
Common mistakes include favoring investments from your own employer, state, region, or country, holding on to investments for too long and focusing too much on past performance.
Debts
If you have debts with high-interest rates, choosing to pay them off may be the best strategy. You’re unlikely to find an opportunity with a return as high as the interest rate you’ll be paying on a credit card or other high-interest personal loan. Therefore, you should always consider removing or reducing high-interest debts before you begin to put your money elsewhere.
