You might think investing is complicated, but if you read this comprehensive guide you will definitely be on your way to becoming an expert.
10 GOLDEN RULES OF INVESTMENT
No matter what your investment goal is, follow these 10 golden rules to get on the path on investment success:
1. Invest As Much As You Can
This is a simple rule: the more you invest, the more you end up having in the end. Small increases on your investments can mean dramatic increases in your returns. For example: a $5,000 investment would turn into $74,000 in ten years, based on an average 7% return. A $6,000 investment would turn in $88,000 and a $7,000 investment would finally turn in $103,000.
2. Start Early
The most powerful force when it comes to investing money is compound interest. The sooner you start, the more time you will have to make the most out of this benefit. Retirement might seem really far away for you right now, but you need to start building a healthy financial behavior in order to retire with the nest egg you imagine and enjoy your golden years.
Following the example of a 7% average return, take a look at these numbers: if you start investing $1,500 each month when you are 40, by the age of 60 you will have around $789,000. If you start at the age of 30, you will have $1.8 million after the same period. Now, if you start investing when you are 20, you will retire to a nice and comfortable $3.84 million retirement fund. See the difference?
3. Plan For The Long Term
The stock market is volatile, but in the long term, it trends upward. If you invest in the short term, you might end up losing money. Why? Because if something should happen, you wouldn’t have time to recover from it. If you extend your investment horizon, you are more likely to enjoy solid gains.
4. Use Tax-Advantaged Accounts
If your plan is to invest and build wealth to enjoy during retirement, then use your retirement accounts to your favor. If your employer offers retirement benefit, open a 401(k) and max out the matching contribution benefit.
You can also open an individual IRA account and make the most out of their tax-advantaged features.
5. Be Aggressive While You’re Young And More Conservative As You Grow Older
Most financial advisors will suggest this mix. Why? Because when you are young, you have time to make up for bad performances or you can recover if you lose money. As you grow older, that timeline becomes shorter and you should aim to invest in less volatile options like cash or bonds.
6. Know Your Starting Point
Whenever you are making plans, you first need to know where you are at in order to determine which steps to follow. Investing is no exception. Know your net worth and determine your goal. This will allow you to create a long-term plan to get there. Take regular measurements of your financial situation to monitor the process and adjust your plan, if necessary.
7. Don’t Invest In A Financial Product You Don’t Understand
You don’t need to know it all to start investing, but a good practice is to stay away from products or industries that you don’t fully understand. Think of this way: if you are unclear about the overall performance and behavior of a particular product, you have no way of knowing when to sell, for example.
8. Don’t Forget About Your Investments
And we mean it. Usually, most investments require monitoring and follow-up. Market fluctuates and conditions can change rapidly, so make sure you check your investments regularly to make the necessary adjustments. Stay on top of your portfolio!
9. Consider Inflation
If you really want to know the real value of an investment, you don’t need to just look at the price and the performance. You need to go a bit further and consider inflation as well. Investment is looking towards the future, and that’s where inflation can take a toll on your money. It is important that you consider this factor when planning.
10. Add Insurance
Bad things can happen and emergencies can have a huge impact on your finances. Whether it is a medical emergency or a huge storm, you need to have insurance coverage to respond in case something should happen.