Parking your money in a savings account that grows 2.5 percent every year isn't exactly astute investing. In fact, it can be considered as the opposite of it. The decision can come off as lazy and uncreative. If you want livable ROI that can grow your retirement nest, ditch your savings account and invest proactively on assets that actually pay. Here are five steps to achieving just that and more:
Focus on One Asset First
As a beginner in the investing realm, you have a plethora of financial instruments to choose from. And although experts suggest diversifying and putting your eggs in different baskets, familiarizing yourself with a single market first is key to succeeding in the long term. Pick an asset that interests you, such as stocks, bonds, real estate, currencies, or even cryptocurrencies. Focus on identifying key characteristics of the prospective market including what economic catalysts drive it. For instance, investing in growth stocks, such as technology companies, is more profitable during times of economic prosperity. Meanwhile, investing in the US dollar or Japanese Yen could offer capital safety in times of economic uncertainty.
Get a Broker
A good broker can help you open and close positions in an instant. In an activity where even a split second could mean hundreds of dollars in either losses or gains, fast and effortless transactions are key. Third-party websites that review brokers in depth are a great resource for discerning the trustworthy brokers versus the bad ones. The process of applying for a broker account can be tedious, from filling out forms to sending legal documents for verification. You'd want to avoid having to change brokers as much as you can, so it's ideal to meticulously research and vet your first choice.
Figure Out Your Approach
Technical analysis boils down value, risk, and potential gains based on numbers generated by the market or an organization. To arrive at a conclusion, it uses indicators, such as Bollinger Bands, Alligator, and MACD, to try and predict future price direction. Fundamental analysis makes use of macroeconomic and microeconomic indicators to understand the underlying value of an asset. Job reports, consumer confidence, geopolitical relations, and supply and demand are all fundamental indicators. There are dozens of other methods used by investors including hedging and credit spread strategy, which involves using different options contracts with different strike prices to mitigate risk.
There used to only be a handful of financial instruments that you could invest in back in the day. Now, however, there are dozens of assets that can generate passive income for you. Aside from traditional investments, such as certificates of deposits and fixed income bonds, you also have peer-to-peer lending and cryptocurrency trading to explore. Be creative with your asset allocation, but exercise caution when investing in these assets. While they offer higher ROI, they also expose your capital to a higher degree of risk.
Don't Forget to Pay Your Dues
Perhaps the most overlooked aspect of stock investing is paying taxes. Nobody likes giving their money to Uncle Sam, but it's the law to pay your dues. For stocks, the current tax rate is 15 percent if you are in the 25 percent or greater tax bracket. For those categorized in the 15 percent or lower tax bracket, investment gains are taxed at 5 percent. If your stocks paid out dividends, the amount is taxed at the standard income tax rate and is not treated as capital gains. It's a tedious part of investing, but straightening this out as early as possible will help you avoid any unexpected complications.
Successful investing of your money all boils down to effectively mitigating risk. Prioritize the protection of your investment portfolio first before you start chasing profits. The latter will come naturally over time as you practice responsible and safe investing habits.