The risks you are prepared to take will influence the kinds of investments you make and the return you should expect. These rules will keep you in a comfortable risk zone (and let you sleep at night).
1. Don't invest until you're ready.
Your investment portfolio should be built on a solid foundation of sure things: sufficient insurance coverage and several months of income tucked securely away in interest-bearing Certificates of Deposit (CDs) or a money market fund. Only when you have that cushion are you ready to start investing.
2. Invest aggressively for the long term and conservatively for the short term.
Stocks should be thought of as investments for achieving your long-term goals. For short-term goals—that is, money you'll need within two or three years—stick with money market mutual funds, CDs and other sure bets.
3. Don't invest very much money in anything that leaves you uneasy after you have investigated its strengths and weaknesses.
The bigger the promised reward, the bigger your risk. This doesn't mean you should never take big risks; just don't take big risks with big chunks of your money.
4. Don't buy anything you don't know how to sell.
Some so-called investments, such as collectibles and gemstones, are easy to buy but may take specialized assistance to sell, because there are no organized national resale markets as there are for stocks and bonds.
There's hardly a legitimate investment that isn't considered fair game by crooks. They sell low-priced stocks, precious metals, rare coins, commodity contracts, diamonds, real estate. You name it, and someone will find a way to make a scam out of it.
To guard against becoming a victim, approach any unfamiliar investment with the following rules firmly in mind:
Contact the appropriate organization to see if complaints have been filed against the investment firm with which you're dealing:
(FINRA is the largest nongovernmental regulator for securities firms doing business in the U.S. It was created in 2007 through a consolidation of the National Association of Securities Dealers (NASD) and various functions of the New York Stock Exchange.)
If you get suspicious, get out fast.
This sort of fuss works more often than you might think. A crook doesn't want some disgruntled victim making a lot of noise and attracting the attention of the authorities. So if you think you're being ripped off, holler.