If you’re fairly new to investing, you might be wondering what sort of rules you should follow or moves you should make. And while everyone’s situation is different, there are indeed guidelines that make sense for all investors. Here are some to consider:
• Learn the basics. The investment world can seem confusing, but the more you know about the basic components, the more confident you’ll be when you begin to invest. For starters, you’ll want to be familiar with the essential types of investments: stocks, bonds, mutual funds, government securities and so on. And it’s also important to know that some investments are designed to provide growth – an increase in the investment’s value – while others provide income in the form of dividends or interest payments, and still others may offer growth and income.
• Set your goals. You need to know why you’re investing – and that means you must clearly define your goals. Do you want to retire early? When you do retire, what kind of lifestyle would you like to have? Are you planning on helping your children (or grandchildren) pay for college? Once you’ve established your goals, you can create the appropriate investment strategy for achieving them, taking into account your time horizon and risk tolerance.
• Invest regularly. At first, you may only be able to afford to put in small amounts to your investment accounts, but even so, try to contribute regularly. You’ll get into the habit of investing and, later on, when you earn more money, you can ramp up your contributions. If you have a 401(k) or similar plan at work, the money can come out of your paycheck before you even see it.
• Think long term. As you begin investing, it’s important to have the right attitude. Specifically, don’t look for the “hot” investments that will make you a “bundle” in a matter of weeks. Investing just doesn’t work that way – instead, it’s a decades-long process of carefully choosing, managing and adjusting a diversified portfolio that’s suitable for your individual needs. And by maintaining a long-term focus, you’ll be less susceptible to making ill-advised moves in response to short-term market events.
• Don’t get scared off by downturns. If you invest for many years, it’s inevitable that you will experience sharp drops in the financial markets. But these declines are actually a normal part of investing. If you overreact to them by selling investments just because their price has dropped, you’ll not only be breaking a cardinal rule of investing – to buy low and sell high – but you’ll also be disrupting the type of cohesive, continuous investment strategy that’s necessary to help you achieve your goals.
• Get some help. You may find it easier to navigate the investment landscape if you get some help from a professional advisor – someone who understands your goals and family situation and who can make appropriate investment recommendations. A financial advisor can also suggest changes to your portfolio in response to changes in your life (new job, child graduating college, etc.) and in your goals, such as a new date for retirement.
When you invest, there aren’t many guarantees. But by following these suggestions, you will know, at the very least, that you’re taking the steps that can lead to success.