Whether you’ve earned your first big job out of college or been working for years, deciding to begin investing is a big decision. Putting your money to work for your is a wise decision but you should know how to spot a bad investment opportunity. Failing to do so could set you back financially for years.
The fear of making bad investments can scare people from investing but arming yourself with knowledge before you begin seeking investment opportunities can make you more comfortable throughout the process. These are a few things to look for:
- Overly complicated investments. Asking questions to seek clarity on an investment you don’t understand is wise and if the person can’t provide a clear answer, it’s okay to consult a financial adviser or simply say “no” to their offer.
- Putting your eggs in one basket. One reason investors say to diversify your portfolio is so that you don’t have all your money tied to investments that are difficult to access. Investments like annuities and 401Ks can be worthwhile, but accessing your money is more difficult and exposes you to paying taxes upon withdrawing money from them.
- Avoid paying commissions upfront. Experts advise against paying an upfront commission because they feel it removes incentive for the financial adviser to work as hard for you afterwards. Certain mutual funds and annuities fall into this category. However, experts feel paying an upfront commission on real estate an acceptable because the transaction ends with the purchase of the property.
Investing doesn‘t have to be scary
Beginning investing can be a daunting experience. While there are horror stories out there, you can educate yourself to recognize bad investments and protect your financial future. Remembering to ask enough questions and seek professional advice when you’re beginning to invest can greatly enhance your experience.