While it’s smart to consider the risks before investing, the fact is that by using the right resources and doing some research first, taking a little risk can bring you healthy returns down the road!

In order to avoid making poor investment decisions or risking your finances, here are a few things that you should know before you invest:

1. Avoid unqualified and untrustworthy people

There are tons of get-rich-quick schemes out there, be it online or in person, and the unfortunate reality is that every day people make the poor decision to invest in them. People get sucked into this for different reasons, but the one thing that’s true across the board is that everyone who invests in these schemes ends up falling further behind than they were in the first place.

When you decide to make an investment, you must only do so when guided by a qualified and trusted person. It is important to find and work with a financial advisor with whom you can form a relationship where you can comfortably ask any questions you have and be open about your concerns. This also allows your financial advisor to see where your priorities are and to find the most worthwhile investments for you.

2. Understand what a realistic return is

If you’re thinking about investing in something that promises to make you thousands upon thousands of dollars each week, you might want to reconsider the decision. Investments are a way of helping your money grow, but that growth can only happen in the long term. Promises of weekly paychecks of thousands of dollars are simply not realistic and are better avoided. Instead, once you’ve found a trustworthy fiduciary, talk with them about developing a long-term investment plan based on steady, profitable companies. Ask as many questions as you can about each company they recommend you invest in so that you get a good idea of where your money will be going. With this in mind:

3. Don’t invest in something you don't fully understand

This should probably be obvious, but for some people, it isn’t: don’t invest your hard earned money in something that you do not understand. If someone suggests that you invest your money in a product or a stock and you don’t understand what the product is, what it does, why it’s interesting or promising, how the stock market works, what you stand to gain, or what you stand to lose, then don’t put your money in it!

After you do some research, ask some questions, and maybe do some more research, if you still don’t have a clear understanding of how and why something is a good investment, then just don’t do it. Take this as a serious red flag that the particular investment might not be for you. There are many, many other possibilities out there! So just keep looking and asking questions and talking to your advisor until you find something that makes perfect sense and that you feel good about. Having confidence in your investment is essential because it will keep you from making rash decisions, taking your money out and putting it elsewhere on the fly, and generally missing the point of long-term investing.

4. Don't rely on investments that are working great for your friends

Sometimes working with friends and family is the best! But not when it comes to investing. Just because your friend has found something that worked well for them for a month does not mean that it will be profitable in the long run. If you’re considering investing in something that a friend or family member suggested to you, why not take it to your financial advisor and speak to them about the potential risks and rewards? If you’re talking to a fiduciary, then you’ll be getting all the information you need before you push your money into a new investment.

5. You cannot buy the secrets to success and wealth

We’ve all seen the videos and pop up ads saying, “This guy makes $1,500 a week using this simple method,” and the like. Click on them and you’re redirected to an e-book or expensive online course that promises to teach you the secrets to unimaginable wealth. But the truth is there are no real secrets to financial wealth and success, and absolutely none that you have to purchase. Financial wealth comes from working hard and making wise financial decisions, not by paying someone hundreds or thousands of dollars for a quick fix.

Investing your money is a big deal, and it can be overwhelming to figure out the best way to do it, especially if you’re just starting out. You work hard for your money, so it can be nerve-wracking to risk losing any of it in an investment. But by being realistic about your expectations, asking the right questions, and above all, entrusting your wealth to a financial advisor who is a fiduciary, you can safely embark on your investment journey! When done right, investing is a great way to make the most out of your money.

Do you know anyone who’s thinking about investing their money? Share these tips and help them get ahead!

About the Author

Katie Winterburn

Katie Winterburn

Freelance Contributor

Katie is a freelance contributor to MoneyWise.

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