Are you intimidated by the stock market or buying securities? Don’t be ashamed if you feel this way. According to a survey quoted by CNBC, nearly 43 percent of adults are scared of investing, mainly because of the uncertainty about whether or not they’re making the right choices.
While this is perfectly understandable, it’s also unfortunate. Investing is not only an easy way to multiply your net worth several times over, but it’s also nearly impossible to keep up with inflation or achieve any sort of long-term financial security without putting at least some portion of your savings into the markets.
The good news is that investing is not as complicated or scary as some people would like you to believe. In this post, I’ll give you ten great tips for how to become a successful investor.
1. Approach with a Long-Term Mindset
Lots of people put too much pressure on themselves to attempt to find the next Amazon or Bitcoin – something that will skyrocket in value in a relatively short amount of time. But true investing isn’t a “get rich quick” scheme. It’s a process that rewards those who are patient (and anyone who tells you otherwise doesn’t have your best intentions at heart).
Even though it’s possible to buy a stock and see it double or even triple in price after a year, the majority of people will do much, much better to take advantage of the compound interest effect. This is when money grows not only on the money you contributed but also on the earnings you’ve accumulated along the way. Even with modest, conservative funds, the compound interest effect will enable your portfolio to grow to new heights the longer you keep at it.
2. Focus on Quality Assets
There are literally millions of different ways to invest. A few of the major types of assets include:
- Mutual funds
- ETFs (exchange-traded funds)
- Individual stocks
- Bonds
- Real estate
- Cryptocurrency
- Etc.
While you may have a lot of different options, the reality is that not all of them will be great performers. Part of the job of an investor is to identify the ones that will be desirable both now and decades into the future. As expert investor Warren Buffett has famously said, “If you aren’t willing to own a stock for 10 years, don’t even think about owning it for 10 minutes.”
A good place to start is with a stock market index fund. In one transaction, anyone – even a complete beginner – can buy up shares of the top 500 companies in the U.S. It’s a no-brainer way to partner with the best of the best without analyzing each individual stock yourself.
3. Don’t Take Unnecessary Risks
While it can be enticing to chase after high returns, something that needs to be well understood is that it can come at a price. Industries that are hot right now might be the first to fall as soon as the economy hits a bump or regulators make a new change.
When looking at the long-term trend of a stock market index (generally 10 years or so), it tends to produce a positive average return of 10 percent annually. This allows every investor to capture this double-digit return of the market as a whole.
4. Ignore the Noise
These days, everyone on the Internet and social media portray themselves as an expert. They all have their arguments for why an asset may go up or down, and it all sounds very convincing. However, it’s all pretty much just noise.
The truth is that no one really knows what the next hot company will be or how the market will react to the latest political news. A smarter approach is to make an investment plan, determine how much risk you’re comfortable taking, and stick to it.
5. Don’t Try to Time the Market
When the markets are down and it seems like a good time to buy, it’s important to realize that an investment may have a lot further to fall. No one truly knows when an asset has hit bottom until after the fact, and so it’s nearly impossible to try to time the market.
That’s why financial advisors recommend dollar-cost averaging (DCA) instead. By regularly buying assets every month or week, you’ll automatically take advantage of those price dips without even having to think about it.
6. Contribute As Much As You Can
No matter how hard or clever you try to be, you’ll never be able to control how much the market decides to return. Even though we know the average return of the stock market is 10 percent, this is not a guarantee, and it most certainly will fluctuate from year to year.
The one thing you can control is how much you want to contribute. The more you put into your portfolio, the more volume there will be to utilize compound interest. Using a helpful retirement planner like this one from Buxfer to forecast how much your portfolio could be worth in the future, you’ll see for yourself what a benefit it could be.
7. Avoid Taxes Whenever Allowed
Taxes may be a certainty in life. But is there any reason to pay more than your fair share? Absolutely not!
Every year, the IRS lets most people contribute up to $20,500 into a workplace retirement plan and another $6,000 into an IRA. If you’re age 50 or older, then those limits are even higher.
With every dollar you contribute to these plans, it’s one less that you have to pay taxes on. For that reason, it just makes total sense to max out these tax-advantaged funds and minimize your tax bill as much as possible.
8. Watch Out for Fees
Speaking of reducing how much you’ll pay, fees are another thing that can erode your finances over time. Even just a seemingly small difference of one percent can result in $1.5 million lost over a 40-year career as demonstrated in this case study from Forbes.
That’s it’s important to select funds that are low-cost and won’t eat into your returns. Again, index funds are an excellent choice with some companies like Fidelity even offering them for free.
9. Don’t Wait on the Sidelines
It can be frightening to try to jump into investing, especially if the market isn’t too well at the moment. But don’t wait for the “perfect time” to come around – because it never will!
Again, no one really knows when the market is at a peak or the bottom, so it’s impossible to say if buying or selling at that moment is the right answer. But one thing is for sure: if you don’t enter the game at some point, you’ll never make any money at all. Take a consistent and gradual approach like dollar-cost averaging and don’t try to outsmart the market.
10. Stay Engaged Throughout the Process
Being an investor doesn’t mean watching stock graphs all day long or knowing everything about the companies you own shares of. But it does mean paying attention to the news and using the lessons from past market cycles to gauge what you should do next.
Even intelligent, wealthy people can make this mistake. Back in 2008 when the Bernie Madoff Ponzi Scheme was exposed, it was revealed he defrauded $65 billion from his clients. He was able to do this because he was trusted, and no one thought to question his unrealistically above-average returns until it was too late.
Even if you use someone else to manage your wealth, never take your finger off the pulse. It’s your legacy and so you owe to yourself and your family to make sure it’s in good hands.
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