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One of the best pieces of advice I’ve received about risky investing was, “Don’t invest money you can’t afford to lose.” I’ll never forget the first time I bought a single share of a tech company. I was both thrilled and terrified as I watched the price bounce around throughout the day. In contrast, investing in a mutual fund felt more like planting a slow-growing tree—steady and dependable.
The Basics
Stocks
Represents ownership in a company and offer growth potential but comes with higher risk.
Exchange-Traded Fund (ETF)
ETFs are a type of investment fund that trades on stock exchanges and holds a diversified portfolio of assets like stocks, bonds, or commodities. While less risky than the stock market, ETFs usually provide lower returns.
Mutual Funds
Mutual funds are an investment vehicle that pools money from multiple investors to buy a diversified portfolio of stocks, bonds, or other assets. Diversification provides less risk to the investor.
Balancing Risk and Reward
Risk tolerance refers to how much uncertainty you can handle. Understand this about yourself helps shape an investment strategy that aligns with your financial goals and comfort level. Diversification (putting your money in more than one investment) reduces risk by ensuring that no single market downturn wipes out your entire portfolio. The higher the risk usually means higher gains, but the opposite is also true, the lower the risk means a lower return.
Long-Term vs. Short-Term Goals
Long-term investing focuses on steady growth over years or decades. With the help of compound interest and positive market trends builds wealth gradually. Long-term typically refers to an investment for ten or more years. Short-term strategies often returns to day trading which carries substantial risk. Advisors suggest if you want access to the money a less risk investment should be used including certificates of deposit (cds), a high interest earning money market, or treasury bills.
