You may be a rookie investor, but that doesn’t mean you need to make costly rookie mistakes. Follow these seven golden rules and you’ll be on the path to success.
- Play the long game
Never invest for the short-term. The market moves up and down in natural cycles that can’t be timed. Investing for fewer than three to five years doesn’t give you enough time to rebuild asset value if you hit a downturn at the wrong time.
- Don’t put all your eggs in one basket
Don’t put too much of your money in any one stock or bond where one issue could destroy your wealth. Diversify with low-cost, index ETFs and avoid stock picking.
- Make investing a monthly habit
Despite headlines continually calling a market top or bottom, no one can accurately determine where we are in the cycle at any given time. The best way to guarantee that you buy at the right times is to make investing a monthly habit. Invest each and every month, regardless of headlines or market performance.
- Invest only what you can afford to lose
Investing is risky. While the long-term trend has historically been upwards, there are also years of deep declines. If you need money in the near-term, or the thought of seeing your account balance drop 20% makes you sick to your stomach, don’t invest those funds.
- Don’t check your portfolio every day
Investing is the one place where a “head in the sand” strategy might be the smartest method. Set up auto deposits into your investment accounts each month and only look at your portfolio once every three to six months. This reduces the likelihood of panic selling when the market falls or piling in more money when everything seems like rainbows and butterflies.
- Keep your fees low
Mutual funds and ETFs have expense ratios. Many brokerages charge trading fees. Investment providers from financial advisors to robo-advisors charge management fees. All these fees eat away at your wealth over time.
Sticking to index funds and ETFs keeps your fees low while guaranteeing you see the performance of the market so that you can keep more money in your pocket.
- Listen to Warren Buffet’s investing advice
Warren Buffett is possibly the most famous investor in history. He’s created a multi-billion-dollar net worth in just one generation. Learn from his advice to invest for your own future.
“Someone is sitting in the shade today because someone planted a tree a long time ago.”
“I never invest in anything I don’t understand.”
“If you don’t find a way to make money while you sleep, you will work until you die.”
“The stock market is a device for transferring money from the impatient to the patient.”
“It is not necessary to do extraordinary things to get extraordinary results.”