As most people know, investing is a smart thing to do. While you go out to work for the day, you’re happy knowing that over time, your money is working for you too.
Especially with uncertainty over the future of state pensions, investing is a subject that is becoming more important for financial security and freedom going into retirement ages. According to Andrew Craig in his book How to Own the World, anyone under the age of 50 should assume that the government will be in so much debt by the time you retire, that they will no longer be able to offer you a state pension.
But before you jump in with two feet, what are a few things you should make sure of before you start your investment journey?
Pay Off Any Non-Student/Mortgage Loan Debt
There’s no point investing until you have paid off any debt that isn’t from your student loan or mortgage. The reason being is that some types of debt such as credit card debt have high rates of interest. This means that even if you are making a solid 10% return on your investments, you will be paying 20%+ interest rates on your debt – basically placing yourself on the wrong side of compound interest.
Build An Emergency Fund
The last thing you want to do is have to sell your investments because you lost your job or an unexpected expense came up, so before you start investing make sure you have a comfortable amount of cash in a savings account as a security blanket. Selling off your investments can increase your investment fees, but it also encourages you create a habit of doing it in the future too, which can lower your investment returns for years to come. Six months to a year’s worth of expenses should be ample in an emergency fund.
Create An Investment Plan
It’s not wise to just wing it when it comes to investing. Figure out which investment vehicles you want to put your hard-earned money into, and decide what your psychological risk tolerance is. The key is to create a plan and have the discipline to stick to it. Decide the frequency and the amount you will be investing, and how diversified you want to be – whether to buy stocks, bonds, commodities, real estate, precious metals or even cryptocurrency. A lot of new investors will dabble in certain investments, and withdraw their money as soon as any losses appear. The investor that has a solid plan will be able to ride out any market uncertainties because they have already rehearsed beforehand what they would do in that situation.