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Getting into investing isn’t as difficult as some people think. However, you need to know your investing style before you start spending money on financial products. Do you intend to be a very hands-on investor, or would you prefer to take a more detached approach? Let’s look at the benefits and drawbacks of each strategy.
The kind of investing that people tend to think of as time-consuming and nerve-wracking is hands-on investing. An engaged investor checks the stock market report every morning and keeps a close eye on the stocks they hold. If you think you’re more of this type of direct money manager, there are a few things you need to know.
The first thing is that hands-on investing can be very lucrative if you make the right calls. Finessing your way into a stock before it goes on a massive rally can make you wealthy in a short amount of time. But, on the other hand, this style of investing also comes with risks. Every time you move your money around, you take the chance that this new strategy could fail.
Remember that changing your investing plan on short notice can be expensive. When you sell an asset, if it’s worth more than when you purchased it, you need to pay a capital gains tax on it. That tax is assessed at a higher rate if you held the asset for less than a year. Take that into consideration before you make any big changes in your portfolio.
Some investors don’t want to worry themselves with their portfolios. Setting your retirement account contribution and forgetting about it is a sound way to invest. This method saves you time and hassle. You don’t need to worry about reading up on the market or making guesses about future stock performance.
On the other hand, a hands-off strategy is likely to be consistent, if underwhelming. Investors who don’t make moves to capitalize on undervalued stocks won’t experience big wins. Conservative money managers would argue that they also don’t have exposure to the worst drops that can hit active investors when they make an inadvisable guess.
The bottom line is that there is no right way to invest. You should spend your money however you think is best. It’s up to you to decide whether dedicating free time to managing your stocks is worth it or if you want to go with a steady, dependable investment that doesn’t need your attention.
