Personal Finance For Dummies®, 6th Edition

Chapter 8. Considering Important Investment Concepts

In This Chapter

• Determining your investment goals

• Evaluating returns and risks

• Keeping your eggs in more than one basket: Asset allocation

• Distinguishing the best investment firms from the rest

Making wise investments doesn't have to be complicated. However, many investors get bogged down in the morass of the thousands of investment choices out there and the often-conflicting perspectives on how to invest. This chapter helps you grasp the important "bigger picture" issues that can help you ensure that your investment plan meshes with your needs and the realities of the investment marketplace.

Establishing Your Goals

Tip

Before you select a specific investment, first determine your investment needs and goals. Why are you saving money — what are you going to use it for? You don't need to earmark every dollar, but you should set some major objectives. Establishing objectives is important because the expected use of the money helps you determine how long to invest it. And that, in turn, helps you determine which investments to choose.

The risk level of your investments should factor in your time frame and your comfort level. Investing in high-risk vehicles doesn't make sense if you'll have to spend all your profits on stress-induced medical bills. For example, suppose you've been accumulating money for a down payment on a home you want to buy in a few years. You can't afford much risk with that money. You're going to need that money sooner ...