Investing Basics

If you're new to the world of investing, don't worry. The fundamentals of investing are actually quite simple. The sport of investing is similar to any athletic event--if you remember the fundamentals, you'll be fine. You'll probably out-perform the showoffs as well.

Sticking to Investing Basics

The first step to constructing an investment plan is to evaluate your risk tolerance and investment goals. There are several ways to evaluate your risk tolerance, including the answer to the following question. How would you feel if you lost 15 percent of your investment in one year? If you already feel a tear dropping down your face, you won't want to weight your portfolio heavily in equities. Of course, there are other factors that will play a role in how you choose to invest your assets.

Remember, that stocks perform better than any asset class over the long run. If you only have a few years until retirement or you are a very conservative investor, however, you'll want to stick to a more conservative portfolio. If this is the case, bonds, money markets, and value stocks will suit you well. One of the largest fundamentals of investing is time. You have to give your investments time! If you are a short-term investor, you may not be able to play the long-term game.

Another important investing basic is diversification. It's incredibly important that you allocate your assets across various investment classes. Investing your entire retirement fund in bonds isn't as safe as it sounds! If the bond market collapses, which isn't outside the realm of possibility, you'll want to have investments in other categories to help minimize overall loss. A third fundamental to point out is diligent research, even if it's not your own. It's important to keep up with investment newsletters or other sources of financial information. This is called active management. If you continuously re-evaluate your risk tolerance, diversify your assets, and actively manage your portfolio, you'll be on the road to successful investing.