To grow your wealth and secure a comfortable financial future, you’ll want to adhere to some essential investing tips. Many people are quick to jump in with investing and excited to put their money to work. But quickly, they can find themselves losing money or at unnecessary financial risk.
This is not to scare you away from investing but as a warning to ensure you are prepared before blindly throwing money towards assets. Here, I put together some of the best investing tips I think all beginners should master on day one and beyond.
1. Know why you’re investing
If you don’t understand why you are investing your money or your goals, you’ll make mistakes and lose sight of the big financial picture. And no, getting rich should not be your goal; that will lead you down some sketchy paths or can cause you to make poor choices. You certainly can get incredibly wealthy with investing, but you need to have more attainable and long-term goals.
2. Read books about investing (and continue to)
While you should sign-up for your company 401k or open an IRA, the biggest mistake you can make is rushing into investing your money. While investing in stocks is not overly complicated, there is a lot of information to digest.
3. Never invest in something you don’t personally understand
Although this might sound like common sense, you’d be surprised how easy it is to fall into a trap when dollar signs are flashing before your eyes. Always invest in the things you understand first. Please read about it, know the history of your investment, research, etc. Blindly following the herd may strike you gold, but odds are you’ll lose money before winning.
4. Avoid jumping into investing fads
Avoid jumping into investing fads or when everyone is talking about something. Remember that period of time when cryptocurrency was all anyone talked about. At the hype of Bitcoin, everyone’s mom, dad, grandma, and the mailman was talking about investing in digital currency.
5. Get protective when people are greedy
When everyone is optimistic about the economy, investing, and talking about it, it might be time to hang on the sidelines a bit. It doesn’t mean you should stop investing altogether, as dollar-cost averaging is a great proactive strategy with your 401k or IRA long-term. But be aware and monitor the overall sentiment around the stock market or economy.
6. Get greedy when people are fearful
Additionally, when people are fearful of the markets, it’s probably a good time for you to get more aggressive. While a bear market or stock market crash could happen, the stock market always has recovered. We have historical data to prove that. This is when you can invest much cheaper and reap the massive benefits as the bull market returns.
7. Avoid trying to time the market
Everyone (and experts) make assertions and predictions, but no one can accurately know what will happen with the market. You’ve probably seen the headlines in media with two down days in the market, “Crash is coming!” Or other experts predicting this will be the year for a bear market. But no one knows for sure, and no one knows the bottom or top of where the markets will go either.
8. Master the art of diversification
Depending on your age and investing horizon, what you invest in will be different from others. You should be allocating some funds to stock, bonds, maybe some real estate, or commodities. The idea behind it is that you don’t want to have all your eggs in one basket and instead want to take advantage of different asset classes.
9. Learn how to read a prospectus
A prospectus is an overview of the company you are investing in. This document is required by the SEC to be provided to the public. Prospectuses help you, as the investor, make important decisions about any stocks, bonds, index funds, fund managers, and companies you might be considering. Usually, you’ll find the earnings of a company, the projected future stock price, and more in prospectuses.
10. Remove emotions as best you can
Investing in the stock market can be a roller coaster due to market volatility, and if your emotions are not prepared, you can make some rash decisions. This goes for both in bull and bear markets. Letting emotions drive your decisions can lead to losing money, selling, and buying too often and can impact your long-term results.