5 Steps to Being a Smart Investor
Woman smiling
The recession that is gripping America has taken a toll on the pocketbooks and investment portfolios of many, but CNN's chief business correspondent, Ali Velshi, says you can take control of your finances despite the economic downturn. Ali, author of Gimme My Money Back: Your Guide to Beating the Financial Crisis, offers five steps he says you can take to become a smart investor, no matter the state of the economy.
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Step 1
Take a "risk tolerance" test (a test that measures your attitude toward risk versus your age and other factors). Find out what kind of investor you are, and don't put money you'll need access to within five years into the market.
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Step 2
Develop an asset allocation strategy—the appropriate distribution of your money across several types of investments. This lowers your risk and earns you a higher return than if you just invested in one or two types of assets.
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Step 3
Diversify your investments. Mutual funds, index funds and Exchange Traded Funds (ETFs) give you instant diversification with less risk than owning individual stocks.
Buy and sell.
Step 4
Rebalance your portfolio at least once a year. Keep your portfolio aligned with your "asset allocation" by selling some of your winners and buying more of some investments that have suffered.
Retirement plan folder
Step 5
If you leave your employer, roll your 401(k) over into an IRA immediately. It's the only time you can convert your 401(k) into a retirement vehicle with many more options.
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