When you start to invest or begin looking at your different options of what to invest in, it is paramount that you understand what you’re investing in. This concept applies to many aspects of our lives, but here I’m focusing on investing. You’ve got to understand what you’re doing.

There are so many options available to us these days that it can be extremely tough to choose where to put your money. There are full service brokerages, self service brokerages, retirement accounts (both employer sponsored and not), mutual funds, individual stocks, real estate (residential, commercial, etc.) and so much more. If you understand how money is made in each of these investments you can do quite well for yourself. If, however, you’re not sure how they work, you can also lose a lot of money.

I’m sure most all of you have seen those late night infomercials telling you how easy it is to make money in something like real estate. And I’m sure there are all sorts of opinions on this subject as well. Well, the truth is that there is both money to be made in real estate and money to be lost. Donald Trump is a typical example of someone who knows how to make money in real estate and you probably know someone who has lost money in real estate. The difference, I submit, is that some understand the game and others don’t.

The stock market is another place where some people make money and others lose money. There are people like Warren Buffett and (once again) there are plenty of others who have lost a ton of money in the market. I don’t think anyone will dispute that Warren Buffett understands how the market works and how to profit from it. Those who continually lose money in the market probably don’t understand it like they should.

So what does all of this mean for us? What should we invest in and how? It may behoove us to step back and instead of wondering what to invest in, decide what we understand or what we want to understand better. If you’re interested in the stock market, begin by researching how one makes money in it. Just because you’ve heard that you can make a lot of money through options trading doesn’t mean that you know how to. Someone you know may have made some money by shorting a stock. Does this mean that you should all of a sudden start shorting stocks?

Now, instead of realizing all of the things that you don’t understand, take the time time to educate yourself in areas of investing that interest you. Perhaps you can find a mentor of sorts that knows how to do what you want to do. There are also a ton of books at the local library with a wealth of information on various investing topics. It may be time to invest a little time in yourself before you start investing your money.

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