Investing is one of the most important things you can do to increase your wealth, but a lot of people are hesitant to get started. Investing might seem complicated and mysterious, but it's really not. Anyone can start investing, and you don't need a lot of money to do it. If you've been waiting on the sidelines, our top 10 investing secrets you need in your life will get you into the game!
- Watch What You Spend
While it's true that you don't need a lot of money to start investing, the old saying that it takes money to make money is true, and if you don't watch what you spend, you may not have any money left at the end of the month to invest with.
When you're setting up your monthly budget, make sure you allocate some money to invest. If you can't find any money, go over your monthly spending. You should be able to pay all of your monthly expenses without a credit card. We all have our problem areas, places we spend more money than we need to. Find your problem areas and make the necessary cuts to your spending.
- Diversify Early
Diversifying simply means spreading your investments over different areas. Stocks, bonds, real estate, and cash. This helps protect you from risk. If one sector in your portfolio is down, another is up to help balance it out.
The easiest way to diversify is to invest in an index fund. An index fund is a type of mutual fund with a portfolio created to match or track a market index like the S&P 500. An index fund gives investors broad market exposure.
It will have stocks in different companies in different sectors, various types of bonds, and sometimes real estate in the form of REITs. Investors don't have to pick and choose various investments individually, the index fund has done it for them.
- Invest in Effortless Business
An effortless business can be defined as one with strong brand recognition and a product that doesn't require change, innovation, or new technology. Coca-Cola is a great example. Coke is one of the most famous brands in the world, and the formula hasn't changed much over the years. Coke was founded in 1886, and the first change to its formula didn't happen until 1982 in the form of Diet Coke.
Yes, there was the whole "New Coke" debacle in 1986, but everyone would just rather forget that! Coke learned its lesson and brought back the old formula.
- Forget Past Returns
Past performance is no guarantee of future results, as the saying goes, but this can be an easy trap for new investors to fall into. We see an asset class or market sector doing well and think, "I've got to get in on that!" and pull from other investments to dump money into this hot thing.
Past performance shouldn't be discounted entirely, but it should be observed over a long time period. Has a company had positive returns for a few decades? That's consistent past performance. Two-quarters of high returns is really indicative of nothing.
- Be in it for the Long Run
The stock market has ups and downs, but over a long time horizon, a few decades, the highs and lows balance out to give a positive return. That means you have to buy and hold. Make your investments after doing due diligence, and let it ride.
- Look for a Margin of Safety
Margin of safety sounds mysterious, but all it means is buying a stock at a price well below your best estimate of a stock's intrinsic value. Don't buy stock in a company just because you've heard of it. Only buy when it's an effortless business selling at a really good price.
- Don't Time the Market
Buy low and sell high is an investing fundamental, but investing long-term is a fundamental, too. Waiting for the perfect time to buy and the perfect time to sell is a fool's errand because none of us has a crystal ball.
It's more important to spend time in the market (holding investments long-term) than to get the timing exactly right, which almost no one can do anyway.
- Don't Be Intimidated by a Small Start
When it comes to successful investing, time matters more than money. The longer your money is invested, the more time compounding interest has to do its thing. Waiting too long and not even investing bigger sums of money can make up for the time lost. There are plenty of investment platforms that let you get started with no minimum investment, so if you have $1, you can invest.
- You Don't Have to be Precise
Investing is like horseshoes and hand grenades. You don't have to be precise to be successful. Yes, do your research before making any investment but you don't have to read 20 professional journals and create complicated Excel spreadsheets to be a good investor. Who has time for that anyway? Much more fun things you could be doing.
- Big Picture It: Stick to Your Goals
Block out the financial, economic, and political news that we're all inundated with 24/7. That kind of stuff should have little to no bearing on your investing decisions. Sure, your goals will shift over time, you want to buy a home, have children, or start a business. When your goals shift, it's okay to shift your investment decisions to help support those goals, but outside factors should not guide your choices.
- Investing is No Secret
Well, we did give you the top 10 investing secrets you need in your life, but none of them are particularly secret! They've been around for decades because the fundamentals of good investing don't really change.
You could have been a successful investor with this advice 50 years ago, and you could be a successful investor with this advice 50 years from now. But please, don't wait 50 years! Start investing now.