Here are 5 tips for successful investing.
1. Start Early
Compounding truly is one of the greatest forces in the investing world. By starting to save and invest early on, a person can maximize the advantages of earning compounded returns over their lifetime.
Studies have shown that the financially well to do became that way by making a habit of saving and investing regularly. The easiest way to save and invest regularly is by setting up a automatic savings plan that takes money out of your bank account on payday and invests it in a diversified collection of financial assets.
3. Keep Investing Costs Low
I’ve already written a post about the danger of mutual fund fees and how important it is for to keep investing costs low. I think that once a person understands how important the role of saving is for attaining financial freedom, they’ll want to choose the low-cost option for investing their hard earned money.
Fortunately for today’s investor, there are many low-cost options out there. These range from exchange-traded funds (ETFs), index mutual funds where the Management Expense Ratio (MER) is lower than 0.60%, to discount stock brokers that costs as little as $5 per trade.
There is also the option to set up a dividend re-investment plan (DRiP) with a share purchase plan component (SPP). These plans enable a person to buy individual company stocks on a commission free basis. It’s important to do your own research to find out which investment options are right for you, but remember to always choose the low-cost option.
4. Diversify Your Investments
In the late 1990s, I remember seeing a lot of dot.com millionaires who became rich overnight because all of their net worth was tied up in their business. On the flip side though, I also remember that not long after they became rich they lost it all when the market went bust.
The lesson here is don’t ever have all of your money tied up in any one thing, no matter how great that you think the investment is. That’s why it’s important to learn about asset allocation and diversification. By diversifying our investments we spread risk around so that no single investment becomes a significant portion of our net worth.
5. Think Long Term and Stay Invested
Investing and the road to financial freedom isn’t a sprint, it’s a marathon. That’s why it’s important to keep an eye on your long term goals and stay invested. Markets fluctuate on a daily basis and, as we’ve seen over the past few months, they can sometimes have severe corrections that can make us want to abandon our plan or change it up. I think that’s the wrong approach. Over the past week markets have recovered a bit for the most part and if we sell out during the bad times, we’ll most certainly miss out on the good times.
I once read a report that said if a person missed out on the best 10 days on the Dow they would have given up a large amount of their market returns. So yes markets can fall very quickly, but they can also recover quickly as well. The problem for most people is that they tend to sell at the market low and buy when they think it’s safe again (after the market has bounced back). Stay invested and buy when the markets are low.
If you’ve liked these tips check out 101 Dividend Investing Tips over at Dividend Reference. I contributed #48!
Thanks for reading 5 tips for successful investing.
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