While it’s always good to save, leaving all your earnings to sit and gather dust will rarely leave you ahead in life. Making investments with surplus capital is a great way to ensure your future, especially if you first research how investing works to make informed decisions. The following three guidelines can help as you learn how to make your money work for you!
Be Willing to Lose
Choosing to invest doesn’t mean choosing not to save—in fact, it is essential to have saved first before considering an investment. If you expect you will need your surplus capital in the near future, investing it instead can jeopardize your livelihood as well as anyone who depends on you. For that reason, never invest money you aren’t willing to lose, and still have savings besides. Market crashes or recessions, inflation, and even oil spills can negatively affect your investments, no matter how many measures you’ve gone to trying to protect them.
Choose a Variety of Vehicles
Though there are things you can’t control, taking the time to strategize and protect your investments will be very helpful long term. The metaphor, ‘don’t put all your eggs in one basket’ really applies here—if you diversify your portfolio of assets you are statistically more likely to get a higher annualized return than simply putting all of your money into one stock. When choosing from the many investment vehicles, however, make sure to do your research—for instance, the gold market is fairly consistent, making it a good investment, while oil and gas tend to be more volatile.
Pick an Approach
Despite the fact that investments are often inconsistent in their returns, you can lessen this problem by being consistent in your approach. Some novice investors have an idea in their heads of what investing will be like and what they will earn, without having an actual plan in place and an investment strategy to stick to when the going gets tough. Make sure to set goals beforehand, decide how liquid you want your investments to be, and what risks you will and won’t take. The “buy-and-hold” is one that beginners often take, but make sure it’s an investment you believe in first.
Overall, there is much to gain from investing your surplus money—but there’s also a lot to lose. Make sure to be informed and confident in the investment before going through with it. And of course, change up what you put your money into so that if something tanks, not everything will.