Investing in stocks and shares through brokers can be a great way of passively earning some extra income to give you an extra financial boost. It can help you boost your savings, provide greater financial stability, and protects your money from inflation and taxes.
However, to ensure your investments are safe, it’s important to learn how to invest responsibly. In this guide, we’ll be going through a few essential tips that will help you invest responsibly and ensure your money is as safe as it can be.
1. Learn That All Investments Involve Risk
An investment isn’t a sure-fire way to earn money. Stocks can lose value, therefore you may lose money, so it’s important to know that there will always be a certain amount of risk involved when investing money. Types of risk include:
- Market Risk refers to the stock you’ve bought falling in value to less than what you initially paid for it.
- Liquidity Risk is when the stocks you’ve bought are not easily sold or converted into cash when you need it.
- Inflation Risk is where your investments may not earn enough over time or inflate enough to be worth your time or money.
Every investment involves risk, and generally the greater the risk, the greater potential for higher returns. But, you should consider whether you can afford to lose your investment.
2. Research Your Brokerage Or Broker Before Opening An Account
Researching your brokerage firm is an essential step in investing as it can help you avoid some serious problems later. It’s always useful asking if the brokerage is registered with FINRA so that your money is protected. That way if there are any disagreements or disputes with the broker, FINRA litigation lawyers can help solve them in a fair and unbiased manner.
You should always verify your broker is correctly registered and licensed by your state’s insurance commissioner before investing with them, as well as checking if they are a member of the Securities Investor Protection Corporation (SIPC), as they can help replace your losses if your broker becomes bankrupt.
3. Communicate Your Investment Goals Clearly To Your Broker
If you have a clear plan of your goals and when you want them to happen, this can make it easier for your broker to make suitable investment recommendations. They should record these in a customer profile which you can ask to keep as a part of your records. If your goals and plans change during your time with your broker be sure to inform them, so they can adjust your finances accordingly.
4. Learn About The Fees You May Be Charged For
It costs money to invest with a brokerage firm, so to ensure there are no surprise fees later you must understand what services your broker offers and how much they cost. There can be many fees related to your account, including opening and closing services, and services for the transferring and maintenance of fees. Be sure to ask what fees you have to pay with every investment including things such as surrender charges or commissions.
5. Avoid Any Investments You Do Not Understand
It’s essential that when you invest, you understand what you are buying. This means you can form realistic expectations for returns and avoid disputes with your broker. If you don’t fully understand an investment you can ask your broker to explain things to you until you do. At a minimum, your broker should know how the investment works, when it should grow or shrink, how and when you would earn money on the investment, why the investment is right for you, and what the risks are.
Investing can be a risky game, but if you are responsible with your investments and communicate clearly with your broker, then it can be profitable for everyone involved.