5 Investing Rules to Follow
Investing is a great way to build wealth. But the playbook can get a little confusing. So to help clear the air, we’ve highlighted five important rules to follow as you grow that million dollar portfolio. And please note, these are general guidelines and shouldn’t be taken as specific investment advice. If you need more help, we suggest you sign up for our free core content course or consider working with an investment professional.
With that, on to the rules!
1) Get started early
The sooner your get started investing the better. Not only will you benefit from the power of compounding, but you’ll get in the habit of regularly setting money aside for your goals. Even if you don’t have a lot to invest, that’s okay. The key is to get started. A retirement account, like a 401(k) at your first job or an Individual Retirement Account (IRA) on your own, can be a great way to start.
2) Diversify
Investing offers the opportunity to see your money grow over time. But it does come with some risk. Your investments can lose value. The good news – you can reduce this risk by diversifying, aka spreading your bets.
For most of us, the best way to do this is by investing in funds (mutual funds or exchange traded funds). With a fund, your money will be spread across a range of investments. So if any one investment runs into trouble, your overall portfolio will still be ok. And on average, you should expect your investments to increase over time. (More money! Yay!)
3) Pay attention to fees
No matter whether you manage your own money or work with a professional, you’ll want to keep an eye on fees. They vary from one service or product to the next and can eat away at your profits if you aren’t careful. But given how many competing financial firms are out there, you shouldn’t have to pay too much for good investment solutions. So shop around and make sure you aren’t overpaying for advice or for your funds.
3) Align your investments with your personal situation
How you invest your money will depend on where you are in life. If you’re young, and you won’t be needing the money for a long time, you can usually accept more risk and invest more aggressively. Typically this means having a higher proportion of stocks versus bonds in your portfolio. As you get older and approach retirement, you would generally shift to more conservative investments to meet your financial needs.
Learn more about creating a portfolio.
5) Don’t let emotions interfere
If you’ve ever succumbed to impulsive online shopping or felt panicy during a stock market stumble, you know the power our emotions can have over our financial lives. So it’s important to do your best to protect your finances from those pesky personal demons. Come up with a long-term plan and stick with it. Sure, you won’t be perfect all the time, but it will help you get on track to where you want to be.
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