Investing is one of the most important financial steps you can take in life. Whether you realize it or not, you are investing all the time. You put money into a house that will build value and you can cash in on that value if you sell it. You spend money on education or training in order to get a return with better wages or working conditions.

Of course, most people think of investing more in the context of direct placement of their money into some kind of instrument that is intended to give them an eventual return, usually for retirement. The need to do this is very real because if you simply sock away your money in a mattress for 30 years, you’ll have less spending power in the future than if you had spent the money when you got it.

The challenge is in identifying what route to choose for your investments, and how to go about it. Let’s go over some of the steps you should consider.

Talk to Your Employer

Many workplaces have voluntary (and in some cases, mandatory) retirement options. You may be required to opt-in, but you may also have additional voluntary opportunities or the option to put extra money into the mandatory investment fund. Either way make sure you carefully review your options so you know exactly in what you will be investing.

You may have preferences that your employer can’t work with, so be sure you understand where your money will go. After all, long-term investments don’t have to be stocks, bonds, mutual funds, or all the things you hear about on TV. Foreign currencies and many others are available to you, so research your options.

 

Understand Your Tolerance for Risk

Some investments have a very low risk, others very high, and the rest are scattered in the middle. To go back to currencies, some have high potential for long-term growth while others are more volatile. The biggest gainers can turn into the biggest losers, so don’t just randomly choose things and hope you’ll hit a home run.

Regardless of their long-term prospects, every investment has its ups and downs. This is where you really assess yourself. If you know you’ll get spooked with a stock that bounces around day by day (or even hour by hour), stay away from it. It may be a great prospect, but if it’s going to make you uneasy about your future, you’re better off to go elsewhere.

 

Don’t Forget Taxes

Many employer-sponsored investments are taken pre-tax–that is, the money is deducted from your paycheck before taxes are calculated. That means that the investment itself will be taxable when you withdraw it down the road. Conversely, many voluntary plans or your own independent investments are made with money you’ve already paid taxes on, so their taxation will be calculated differently.

Because there are so many different arrangements available, the wisest thing to do before embarking on any new investment activity is to sit down with your tax preparer and describe your plans, then see what they recommend you to do. After you establish your investment framework, make sure you properly document all your investment moves right alongside your other tax documentation for the year.

Investing is a very important part of a strong financial future. We all have things we want money for–vacations, a new home, or simply a comfortable retirement. The more effectively you can grow your money, the easier it is for you to reach your goals. You’re never too young to start investing, so review all the different factors involved in your investment strategy and build a plan that works for your family and your future.