(ThyBlackMan.com) Are you thinking of becoming an investor? Don’t believe the idea that putting your money in the stock market or bonds would make you a millionaire in a matter of weeks. Here are several important factors to consider before you start investing:
Be Aware of Familiar Warning Signs
This section relates mainly to investing in stocks. The stock market is notorious for its volatility. It’s also infamous for something else: scams.
If you are a newbie investor who is wondering which penny stocks to buy, always be aware of various scams you could be vulnerable to. Anyone can become a victim of a scam. However, investors who don’t do their research and believe the claims made in chain emails and the like are more prone to falling for scams.
Scams and fraud in the stock market sector can take various forms. At its most sophisticated level, fraud is hardly distinguishable from legitimate business investments. For example, consider the recent Theranos scandal, where a company raised billions from investors, essentially by lying about a high-tech blood testing product. But most scams investors encounter are hardly this elaborate. You are most likely to face pump-and-dump scams when trading stocks.
To protect yourself, pay attention to warning reports issued by the SEC and reputed third-party watchdogs. Research your investments carefully. Don’t take any information about company stock at face value. With these precautions in place, you can avoid the most common types of scams.
Learn to Calculate Taxes
Do you earn extra cash with your investments? Your profits may not escape the tax man. Obviously, you would want taxes to have a minimal impact on your investment portfolio. In order to do that, you must have at least a basic understanding of how your various investments could be taxed.
Some forms of investments are “after tax.” For example, if you open a standard broker account to invest, you don’t have to pay a tax on all the investments you make. You will only be taxed on the capital gains of profitable investments. You can also choose to be taxed only once by opening a tax-deferred account or a tax-exempt account.
Taxes can be complicated and very difficult to understand for the layman. Therefore, it’s highly recommended to consult with an attorney to come up with a sound tax strategy for your investment portfolio.
Understand Risk
This is perhaps the most important factor to consider when investing. Technically speaking, all investments come at a certain form of risk. But some investments are riskier than most. Buying stock, for starters, is a lot riskier than saving money in a federally-insured bank.
When you start assembling your investment portfolio, carefully think about the amount of risk you are willing to take on. Will you be willing to risk a lot of money on a new product currently in development? Or would you prefer to spend that money on U.S. Treasury bonds instead?
Think prudently about risk and reward before investing in anything. Diversifying your portfolio can protect you against the all-eggs-in-one-basket type of risk. However, you should also analyze risk versus reward for every single investment you make.
The bottom line is that investors must be vigilant. Do your research, read legitimate reports, and think ahead about practical matters like taxes. Only then will you be able to actually turn a profit investing.
Staff Writer; Gary Brown
