The investing world can be downright scary. You thought you were doing some safe investing and then you watch your bond fund get cut in half. Your portfolio of stocks and/or mutual funds has less than what you put into it. Having watched peoples investing styles from teaching finance classes for 6 years has taught me something about how to invest safely.
How does an individual investor learn how to invest safely? The answer lies in education. It is essential to learn about macro-economic factors that have an influence on interest rates and what condition the credit market is in.
Teaching a money and banking class in 2007 we looked at the charts on equity in traditional mortgages. The charts showed us they were in negative territory. I then asked this college class, "Do you think interest rates will be raised or not and why?" The class came to the conclusion that the housing market couldn't sustain an interest rate increase an probably would decline even if they were lowered.
The charts told us that the economic conditions in the U.S. economy was not good. We talked about investing in Gold and examined the portfolios of people who wanted them evaluated. One student in particular thought she was doing some safe investing by having all of here money in a bond fund. Most people in the class had a few mutual funds and said they were in it for the long haul and that buying and holding was safe investing.
The best way to invest safely is to educate yourself so you can make informed decisions. So the better question might be not how to invest safely, but how to invest smarter. Read: Top Five Online Resources for Investing in Stocks.
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