Stick with the fundamentals

After the housing crash and the stock market crash, there are more people than ever who will tell you that "investing is risky." The problem is that not everyone defines "investing" the same way.

Most people think of investing as any situation where you put down money with the expectation of getting a return on your money. Unfortunately, what many people think of as investing is actually gambling. This is why so many people have been burned by recent events. Many so-called "investors" bought into the real estate market when it was hot, prices were soaring, and they invested on the hope that home values would keep going up and up, even taking on properties that cost more to buy and maintain than they could be rented for. On the other hand, experienced investors who understand the fundamentals of real estate investing refused to buy houses that couldn't cash flow, and sold properties they'd acquired before the boom for a nice profit.

In any kind of investing, what sets the gamblers apart from the true investors is understanding the fundamentals. Knowing and following the fundamentals takes much of the risk out of investing. There's always some risk, but by sticking to sound investment strategies and planning for ways to cover the downside, the risk can be greatly reduced.

So learn the fundamentals, start small, gain experience, and you too can become a savvy investor.

Original publish date: August 31, 2010