When you have a little bit of extra cash lying around, you have two options: store it in the bank or invest it. Investments
can seem intimidating at first, which is why many first-time investors are reluctant to jump into the game. But there are more investment avenues than ever before, so it might be time to get started.
Legal Tips for First-Time Investors #1: Watch Out for Management Fees
Just when you think your mutual fund investments are going to take off, management fees begin to take their toll. When looking into mutual funds, make sure to look into the projected costs of management fees.
Legal Tips for First-Time Investors #2: Searching for the Best
While you might want to look for fund managers with spotless track records, you have to be careful about weighing costs with projected performance. Keep in mind that only about 25% of fund managers outperform their relevant index after fees, and only 10% can do it for three years running.
Legal Tips for First-Time Investors #3: Look Out for Raw Deals
The Standard & Poor’s 500 index is one of the most heavily distorted of the major indexes, with just the top twenty-two stocks encompassing 33% of the overall movement of the index. Tying your fortunes to the Standard & Poor’s 500 index basically binds you to the fortunes of a small sample of available firms.
Legal Tips for First-Time Investors #4: Watch for Tax Benefits
If this is your first time investing, you might want to be on the look-out for investments that come with tax benefits, such as tax deferrals for college-related obligations.
Legal Tips for First-Time Investors #5: Beware of “Fallen Stocks”
Many first-time investors think that they can get ahead of the game by catching “fallen stocks”, but you should know that they aren’t always a good buy. In fact, they can do a significant amount of damage to your portfolio.
Legal Tips for First-Time Investors #6: Balance is Key
If you invest all of your money in one place, then you’re headed for a fall. Instead, spread your assets around in a way that maximizes performance of those assets. Don’t be tempted to take a great tip and put all of your finances into that one area. Different investments allocate different benefits, so be aware of the ebbs and flows of the market.
Legal Tips for First-Time Investors #7: Vary Investment Terms
Your investment portfolio should mirror your financial goals in life; when you start investing, it’s time to start thinking about your future. What are your two-year goals? Five-year goals? Ten and twenty? Some investments should be for short-term goals, while others should be planned for the long haul.
Legal Tips for First-Time Investors #8: Rebalance Annually
Rebalancing your investments annually – perhaps around the same time that you’re doing taxes – will help to keep everything on track, and to ensure that you are playing by the book.