For example, if you want more current income, you might do better with a fixed income investment, such as a bond, rather than a growth company stock, which offers long-term potential but may fluctuate more than a bond. Understand your current financial position . Therefore, you may not want to invest in long-term instruments. The balance is the amount you have to spend on personal uses, such as vacations and gifts, or to invest. Understand your tolerance for risk .
Most investments have some measure of inherent risk.
If you have sufficient assets and income, you might be willing to accept greater risk in exchange for a potentially larger gain. However, if you cannot afford to lose your investment principal, you probably should consider low-risk investments, which, while relatively safe, usually do not earn a high return. Understand your investment . Before you invest, you should understand how the investment works. Likewise, a mutual fund may seem to be a simple investment because your money will be managed by professionals.