3 Steps to Help You Choose Between Different Investment Options

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There is no shortage of different investment options out there. In fact, with rapidly changing technology, it seems like there’s a new investment vehicle every other week.

As a financial writer, I’m front and center of all the action. In the last couple of weeks alone I’ve written about peer to peer lending, real estate crowdfunding, index funds, investing in a particular sector, and more.

How to Choose Between Different Investment Options

This post has been written by our fabulous staff writer, Amanda Abella.

Since I have to write about this stuff, I have a pretty good understanding of how these things work. However, when it comes time for me to invest some of my extra money, I sometimes freeze because I’m overwhelmed by all the different investment options.

If I’m feeling overwhelmed and I write about this stuff for a living, guess how the average American must feel?

In this article, I’m going to lay out some of the ways you can begin to figure out which investment options to focus on. Spoiler alert: It has nothing to do with picking a hot stock.

20161104-how-to-choose-investmentsStep 1: Determine how you want to live.

I’ve interviewed a lot of pretty smart investors thanks to my work. One thing I noticed is how many of them emphasize how people need to figure out how they want to live before choosing between different investment options.

This may seem odd, but there’s a method to the madness. For example, if the idea of managing different properties sounds like a nightmare to you, then you may want to skip out on real estate investing.

In my case, I’ve seen what it takes because I’ve helped my parents rent out a property. I can’t stand it, so I know not to invest here.

Step 2: Determine your risk tolerance.

Some investment options are riskier than others. A common example is that of stocks and bonds. We know bonds are less risky.

Some people also handle risk better than others, which is why it’s important to find out where you fall on the spectrum.

For example, some people may feel comfortable throwing some money into relatively new investment options like peer to peer lending or real estate crowdfunding.

Other individuals may not feel comfortable with this yet and may want to stick to more traditional means. I happen to be in this camp.

Step 3: Make sure you understand the vehicle before investing.

A rule of thumb for investing is to never put your money into something you don’t understand. I would take it a step further and say don’t put your money into something until you understand it well.

This helped me get over my own overwhelm because, if I’m being honest, while I have a good understanding of several different investment options, I only have a really good understanding of a few. This drastically narrows down the list.

From there I check in with the first two steps which will certainly take some more options of the table. After I do that I’m left with one or two different investment options that work for me at this time.

Final Thoughts

Choosing between different investment options doesn’t need to be as complicated as it seems. While there are certainly numbers to take into consideration, there’s a lot more to it than just that. There’s no point in picking something you believe will have a high return if you hate it or don’t truly understand it.

Editor’s note from Derek, the owner:

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