All the above have something in common - there is a chance of success, albeit very small in several of them. The most dangerous investment has zero chance of success. It is simply not investing at all. I do not consider money market accounts (MMAs) and CDs as investing; they are just another form of cash. With MMAs and CDs your best case scenario would likely be to keep up with inflation.
Before investing, here are some things you should consider:
- Do your homework before turning over your money. If you entrust your money to someone else, make sure they are a licensed and registered investment professional. In the U.S. you can use BrokerCheck to check the background of your investment professional.
- Understand what you are investing in. If someone can't explain the investment where you quickly and completely understand how it works, then you should not be investing in it.
- Make sure the investment meets your needs. Understanding an investment is not enough. I understand how a lot of investments work, most of which I would never invest in because they are outside of my defined long-term strategy.
- Diversify based on a sound asset allocation model. Never put all your eggs in one basket. Spread your risk among different industries, companies (size and type), and kinds of investments. Never invest more in any one security than you can afford to lose.
Related Articles:
- Asset Allocation Model
- My Dirty Little Secret
- Dividend Investing With ETFs
- It Was An Odd Odyssey
- Investing In What's Important
