You've heard time and again that the sooner you begin to invest your money – for your retirement, a future home mortgage, or your kids' college tuition – the better. And while investing is nothing to be afraid of, it doesn't make sense to choose between a mutual fund and managing your own portfolio without doing a bit of research first. Here are some tips to help you get started.
1. Your investments can support the causes you feel passionate about: This is called socially responsible investing (SRI). If supporting the environment is your thing, then you should invest in "clean technology," "sustainable," "green technology" or "alternative energy" funds. These funds, while risky, typically invest in companies that create energy sources or provide services, such as hydropower or clean water, with smaller environmental footprints. Choose the cause you feel most passionate about — other SRI funds work to empower women, support human rights activism, and improve workplace conditions.
2. Exchange-traded funds (ETFs) are your friend: ETFs trade just like a stock, but they are actually baskets of stocks, meaning they include shares of several different companies. By owning an ETF, you get the benefit of the diversification of an index fund as well as the simplicity of being able to sell short or buy on margin, like a single stock. ETFs are available in tons of categories, and you can combine funds from several different sectors – from technology to retail. And a diversified portfolio is considerably less risky than concentrating your money in just one or two investments.
3. Determine your time horizon: Are you investing for retirement (in which case, you have a lot of time – a long time horizon) or do you want to invest in order to be able to afford an apartment upgrade several years from now? For money you'll need sooner, you'll want safer investments; with money that you plan to invest over a long period of time, you can take on more risk.
4. The earlier, the better: This is Personal Finance 101. Rather than trying to speculate the best time to invest in the market, instead act with the knowledge that the longer your money is invested, the better. More time means more opportunity for your growth to compound and for your ups to right your lows. So make haste – there is no time to waste!
5. Don't chase performance: Almost all beginners' investing materials warn "past performance is no guarantee of future results." This means that you shouldn't make investment decisions by assuming that what happened in the recent past will have an impact on an investment's performance next year. Instead, make investments in a number of asset classes so that you can benefit from the growth when certain classes do well without suffering extensively when other classes don't.