Step 8: Invest Wisely
The cautious seldom err.– Confucius
As an adult, you need to understand investing, just as you need to know how to drive a car, eat and exercise properly, wipe your bottom, or be able to independently support yourself through paid employment. No one is exempt.
You are probably already an investor through a retirement scheme like the 401(k) or Roth IRA (US), Superannuation (Australia and New Zealand), Personal Pension (UK) or the RRSP (Canada). Whether you are choosing options within these vehicles or making your own investments outside them, you must comprehend the basics of investing before you proceed.
These days you can get away with not being able to fix a car or make a stone ax. However, new skills are becoming essential. Financial literacy is one of them.
Just getting professional financial advice, as explained in Step 9, is not enough. If you don’t understand investing, you are at great risk of following bad advice. This is a serious problem in many countries, and reading the next two chapters carefully is the best way to avoid having the wool pulled over your eyes. Expect this message to be repeated.
Far too much has been written about investment and some of it is wrong. There are only a few things the ordinary, non-expert needs to know. The rest is sauce. Once you’ve finished this chapter, you’ll understand far, far more about investing than the average person, and you’ll be much better able to avoid rookie mistakes. You’ll know all the basics you need in order to comprehend financial advice and to invest with confidence.
If financial literacy were a martial art, then this book will get you to brown-belt level. You won’t know as much as a (good) professional, but you’ll know enough to beat up the bully and get the girl. That is, to find the best financial advice and reach your goals.
This chapter will explain the different investment categories and the options available within these categories, including some interesting alternatives that you might not have considered, and all their pros and cons. We’ll then look at how to diversify between and within these categories in order to manage risk according to your own goals and personality, with several examples. The chapter will go on to explain how to make your investments, but read Step 9: Get Advice before doing so.
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