If you search for the “top 10 best investments” for any given day or sector, you’ll find more advice than you know what to do with. But you don’t really need to know the top 10 investments that are out there; you need to know the best investments that are aligned to your own short- and long-term goals. When choosing an investment, you need to keep in mind the following considerations.
First of all, know your level of risk tolerance. In part, this is a personality factor, but it can also depend on the amount of wealth you have (and how much you can afford to lose) and your age. The older you are, the less time you have to wait for the market to move in your favor. Moreover, if you are not very wealthy later in life, you may be depending on your investments to replace your income or supplement a pension. If you’re not sure how you feel about risk, there are some online tools available to help you assess your risk tolerance.
You also need to consider how long you plan to invest. If you are saving for a relatively short-term goal, like a down payment on a mortgage you’d like to make in the next few years, you’ll want to choose a more conservative, stable investment that is likely to keep your earnings a bit above bank savings account interest rates. A certificate of deposit might be a good way to save for a short-term goal. However, if you’re investing to meet a long-term goal, like paying for a young child’s future college tuition, stocks are a better option, and you can afford a little more risk.
Consider the diversity of your portfolio as well. One of the best ways to protect your money is to spread it across a wide array of investment types and sectors. Having both stocks and bonds (in proportions that will vary according to your age) creates a safety net when one market drops. It’s also important to invest in a variety of sectors, since stocks within a sector tend to perform in the same way.