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Monday, February 21, 2011

Investing Requires Preparation, a Complete Financial Plan, and Effort


It is amazing how little training we receive during the educational phase of our lives regarding investing.  Everyone needs to understand this topic at some point or risk financial ruin or the possibility of a dismal retirement in their senior years.  If articles in the press are to be the report card, then the results are not good.  The average investor on the street is always deemed to be uninformed, late to react to present trends, and generally disenchanted with the art as evidenced by low confidence in the market or feelings that the entire operation is manipulated by the powers that be.

Investing, like any other performance-driven activity, requires skill and a competence level that can only come from time invested in preparation, education, and being guided by an expert that understands the craft.  Time and effort are the prerequisites, but each is in short supply these days.  The simple fact is that you have to make time to learn the art of investing.  Your future depends on it!

The process starts with your monthly financial plan.  You must set your spending priorities in such a way to allow for savings on a constant basis, month after month.  After accumulating an emergency fund of three to six months of income for things like medical bills, car repairs, or work interruptions, the next target is to pay down credit card debt.  One can rarely earn at the interest rates charged by banks on these accounts.  Pay them down.  Take advantage of 401K plans at work, too, or open an Individual Retirement Account to shelter earnings from taxes on your initial investments.

At this stage, read as much as you can on the subject, and then enroll in a structured class in your locale.  Familiarize yourself with the topic enough so that your class work will be easy to understand and assimilate.  Try to build a relationship with your instructor for future reference for those questions that will surely come up at a later date.  The only shortcut for experience is counseling from a professional.  If you do not feel capable of managing your own investments, then seek the support of a good investment adviser.  He will help you prepare a comprehensive financial plan for your future, the base foundation for any investment plan going forward, and assist you with managing your account, for a fee.  

Investing is all about managing risk for a potential reward at a later date.  There are a variety of investment vehicles available for use, but you must understand the risk profiles for each before giving any your consideration.  Investing is not about “trial and error”.  Real money is at stake.  Caution should trump greed every time.  Prepare, research, plan, and act are the words to remember.

You also need to determine what type of investment strategy suits your personality.  Do you prefer the long-term approach, or does a trader’s mentality appeal to your tastes?  In order to answer this question, many have been drawn to foreign exchange trading, a high-risk trading regimen that requires specialized training.  Most all forex brokers will provide a free demo forex account with a “virtual” cash deposit to test out your skills as a trader.  The intensity of the process will tell you a lot about your personal leanings.

At some point in our lives, better sooner than later, we must grapple with the task of investing.  Do not think for a moment that the art comes naturally.  Preparation, training, planning, and then action are all necessary, and are best when guided by a professional.