If you have a general interest in building wealth and living comfortably in retirement, then investing your money will be an essential part of your life. Yet, if you are not working in the financial industry — the idea of investing on your own can be intimidating.
Many experts like Warren Buffett, have some “golden rules of investing,” which are certainly important. But I’ve also put my own spin on these classic investing rules based on my own experiences, which I hope can maybe be helpful to you in your own journey.
1. Keep money aside that is not for investing
One of the most important things you can do is to ensure you have an emergency fund set aside. Often, people are eager to invest and put all their money into the markets.
But then some unexpected major expense happens or a job loss, which requires you to pull money from your investments. Build your savings up to six months of expenses (or more) and don’t use that for investments.
2. Always be learning about investing
In order to be successful self-managing your own investments and learning about the stock market, you have to be consistently learning. There are many points of view when it comes to growing wealth and various experienced investors with insights.
Absorbing all this can help you develop your own perspective and understand the in’s and out’s of investing, plus help shape your own mindset.
3. Don’t invest in anything you don’t understand first
That means understanding the fundamentals of investing and knowing how to read a prospectus of index funds, ETFs, bonds, or individual stocks. Things to look at is how the investment will make you money, whether the investment you are considering has a history of false promises, risk versus reward, and past results.
4. Learn to remove your emotions from investing
When it comes to your money, you want to think clearly and with an analytical mind. And when you let emotions dictate your money moves, it’s when some big mistakes are made. For example, maybe your family is tied to a specific company or family members have a long history of working somewhere. And without thinking or knowing anything about the financial state of the company, you start investing in their stock.
5. Invest as early as you can with as much as you possible
One of the golden rules of investing I learned early, was the value of investing as much as possible and as soon as possible. Everyone’s financial situations are different, like cost of living, how much money you make, any debt, etc. But the earlier you can get started investing, the more that time is on your side to put your money to work.
6. Timing the market is not a good idea
As an investor, you don’t want to play the game of guessing when the right time to buy or sell is currently. Many financial experts and stock news channels will suggest when you should buy or sell, when the market may crash, etc.
Yet, no one can ever accurately predict when or what might happen. After a handful of predictions, certainly one of those may come true — but even then it’s quite rare.
7. Simplicity and diversity are key to steady growth
Typically, simplicity is the more common connection but I also like the diversity aspect for my own investing rules. Simplicity has proven over 40+ years to yield better results than those trying to complicate or build unique portfolios. I
And building your portfolio could be as simple as the three fund portfolio, a target date fund based on your retirement year, or another combo you think fits your style.
8. Don’t get caught up in the stock hype
And as you are getting started, it’s easy to fall into the hype of a particular stock. By that I mean, you see the news talking about, financial gurus are telling you to invest — maybe even friends, family, or co-workers are talking about a particular stock.
Now you are pumped and immediately go invest without doing any research. While one may take off, majority will fail and you’ve fallen into the hype.
9. Avoid dipping into your investments early
Pulling money from your retirement accounts not only affects your compound interest and investment goals, but you’ll face a penalty on top of any taxes you might owe (pending the type of retirement account). Certainly there may be some extreme circumstances where you have no choice, but this is where the value of an emergency fund is key.