According to the dictionary the definition of wise is: having or showing experience, knowledge and good judgment.
So how can you accomplish this when you are just starting out?
While the experience part comes with time, you can begin to invest wisely today by using knowledge and good judgment. Good judgment is defined as: the capacity to assess situations or circumstances and draw sound conclusions. While knowledge is using facts, information and skills.
Following are some things you can do to help with obtaining more knowledge and beginning to investing with good judgment. Put these into play and continue investing and soon you will be investing your money wisely.
A wise investor is diversified. Diversification is when you try to lower your risk by holding different asset categories and different types of investments within each asset categories. It is not wise to bet all your money on one thing, spreading your money across multiple areas helps ease the hurt when one of the investments goes bad. So instead of buying one stock you diversify into at least 10 – 20 stocks that are not related to each other.
The more knowledge that you have about investing, the easier it is to make good decisions. The more you know the better you understand what you are reading, you are harder to “fool” and you can begin to understand the language. All of this will make you a better investor, so start reading and learning about investing today. (For more on how to learn about personal fiance: Personal Finance Education: How to Make Progress)
Understand what you are Investing in
Don’t invest any money in something you do not understand. If you cannot explain to someone else what you are investing in, then chances are you should not put your money there. Remember part of investing is good judgment, and if you can’t assess the situation in order to make sound judgments then you should not be investing in it.
Do Not Listen to Water Cooler Advice
Another aspect of good judgment is that you form an opinion after consideration. If you take a hot investing tip, you have not committed the necessary time and research to the forming of your opinion. This is crucial for making the right decisions for you and your money. Before you take the tip, put in the time to research it and make sure it is a hot tip for you.
There you go, some ways to ensure that you are investing your money wisely. Remember that wisdom comes from experience, knowledge and good judgment. Ensure that you are taking the time to make good decisions and continue learning and your investing will be truly wise.
For help on picking the right mutual fund: How to invest in mutual funds