Personal Finance: Five Steps To Making Better Financial Decisions That Will Yield Return

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Every investor wants to get the maximum amount of returns possible.

Some people make very risky and unwise decisions in the hopes of outsmarting the market or taking advantage of some arcane system.

The reality is that investing requires patience, knowledge and planning.

Five steps will help any investor to make better financial decisions.

Learn About New Investment Options

Making better financial decisions means learning about new investments options before committing funds. Smart investors should look at the previous performance of the investment. It is also helpful to look at current news if the investment is a commodity or stock. Investors should fully understand what affects vehicles like exchange traded funds or derivatives. Investing in something that is not clearly understood is often a costly mistake.

Avoid Overusing Leverage

Many average investors today are offered some amount of leverage. It is important to avoid overusing leverage or relying on it to complete every transaction. Although leverage can help when investments grow, it is an unnecessary risk that can result in lost returns. Investors should use leverage cautiously and only when it does not expose the portfolio to the potential for losses that cannot be covered.

Read the Advice of Experts

Successful investors and financial experts who are willing to share advice are an invaluable asset that will increase returns. Investors should read as much expert advice as possible. Regularly reading some of the best investment newsletters written by experts can provide insights into commodities, market trends and money management. This type of advice will make a large difference in returns over time.

Stay Away From Trends

A large number of people and companies will send out information about new investment vehicles or new ventures. It is important to stay away from new trends that are untested and unproven. Investing in something just because of an opportunity to be one of the first or because of unrelated buzz is basically gambling. Gambling is never a smart investment strategy.

Always Think Long-Term

Every investment should be thought of as a long-term commitment even if it is not. One mistake some people make is to rely heavily on fast-moving and high-risk investments that supposedly garner returns quickly. The better strategy is to consider everything a long-term investment. This makes it possible to avoid short-term losses by allowing investments to sit until returns increase and risk passes.

There are really no set rules when it comes to modern investing. Evert situation is slightly different and there are exceptions to every practical guideline. Smart investors will understand these five steps to yield the highest return.

Written on 11/9/2013 by Anita Ginsburg.

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