Here are 6 tips for investing success. When it comes to investing, lot’s of people have questions about how to make it work for the long term. Here are 6 tips that I’ve found useful on my own investing journey that I think every investor needs to be mindful of. Too many investors are short-sighted and buy and sell at the absolute worst time. I think it’s important to invest for the long haul and if we follow these 6 tips we can be assured of success in the long run.
6 Tips for Investing Success
I structure my financial planning around a 4-5% rate of return. This works for me because my plan is to rely on dividend and rental income. My dividend portfolio alone has given me 8-10% annually, so I feel that my expectations of a 4-5% return aren’t unreasonable.
I prefer to run my numbers conservatively for a variety of reasons. The main reason is that by doing so, it leaves plenty of room to accommodate unexpected events. Besides, if all goes well, what’s the worse that could happen? I retire early? I can definitely live with that outcome.
A properly diversified investment portfolio means that there will always be something that’s underperforming. To get a respectable rate of return, a person doesn’t need to find that one incredible stock. More often than not, it’s the steady growing stable companies that offer the best long term investment.
Everyone should own a mix of assets like stocks, bonds, cash, real estate and even gold. The reason being is that different assets will perform better than others at different times. No one wants to be all-in, 100% invested in stocks when the market crashes. Likewise, no one wants be all-in the housing market when it pops.
Owning a variety of different assets that aren’t correlated to each other is one way to mitigate the risk of owning any one particular investment or any one asset class. Losses will be limited to whatever portion was allocated to that particular asset class.
Rebalance Asset Mix Periodically
In January 2016, stocks were cheap and bonds expensive. Today there is a reversal of sorts happening. As stocks surge ahead and increase in value on economic optimism, bonds will continue to get cheaper due to rising interest rates. Here, it makes sense to start buying bonds and selling stocks.
Sooner or later stocks will retreat and bonds will increase in value, then it will be time to execute the reverse strategy. This activity is called re-balancing and takes discipline to do, but it is well worth it because you’ll always be buying one type of asset “low” and selling another one “high,” and this reduces the overall investment risk.
Don’t Get Sucked into Paying High Fees
Investing isn’t “free” and there are costs associated with it. This is definitely one area that people need to pay careful attention to. How much does a financial advisor charge and is that fee worth the services provided? Are there any hidden fees?
Some mutual funds charge fees that range between 2 and 3%. While seemingly small, over time these fees really start to add up and could end up costing you hundreds of thousands of dollars and delay your retirement by several years. For more information about the dangers of mutual fund fees, check out this article.
There are so many low-cost investment options available for investors today. There’s no excuse for paying high fees. Don’t be lazy, switch to a low-cost option. We can’t control how a particular investment will perform, but we can control how much we’re paying to own it.
When it comes to investing, taxes are always an issue to keep in mind. To minimize taxes, always invest in tax-sheltered accounts first like 401ks and RRSPs. Outside of those ax-shelters, investments are subject to taxes.
Generally speaking, capital gains and dividend income receive more favorable tax treatment in many countries. Earning interest is usually the most heavily taxed form of investment income.
Be Patient and Think Long Term
If you’ve managed to follow the previous 5 principles, then you’re well on your way to achieving financial freedom without taking on too much risk. I think it’s human nature to be constantly striving for better results, however, when it comes to investing, the best thing to do seems to be to just sit back and let the markets and compounding do their work. I’ll admit that this is the hardest thing to do for most investors because we have to place a great deal of faith in something that’s volatile and chaotic in its day-to-day operation but has a proven long term track record.
Humans are naturally driven by emotions of fear and greed and a desire to do something. But when it comes to investing, the best thing to do is nothing. Just keep adding money to your investments and practice these tips for long term investing success.
Thanks for reading and I hope you enjoyed these 6 tips for investing success.
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