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.