After the financial crashes of the last years we are afraid of the market … anyway the biggest mistake you can make is to put the majority of your money into a combination of checking and savings accounts. This is a receipt for disaster .. the inflation only will burn your wealth and you end up broke!
The smart solution is to invest following 8 simple rules … they will take you far in the journey of value creation and, in the long run, they will make you rich!
1. Think Long-Term
When you look at investing, the probability of getting sudden money is close to winning the lottery. Even financial gurus and advisors seldom beat the market. So, as a Smart Investor, DO NOT try and time the market and DO NOT try to beat the market!! You just need to invest steadily to achieve average returns. Luckily the market, despite the short term volatility, in the long term, will go up driven by productivity / technology … and the same will happen to your investments.
Diversification is your insurance for riding the market. It is smart because it protect yourself from failure and position yourself to take advantage of multiple ways to create wealth. At its essence it means to own multiple types of investment assets … Real Estate, 401K, IRA , Brokerage … Individual Stocks, Stock Funds, Bonds and Bond Funds
3. Consistently Contribute
Very few people can time the market … you are not one of them. So do not even try! Contribute monthly to your investments and it won’t matter if you buy at the peak or bottom of the market. As a summary … stay the course and you will win!
4. Do not use a financial advisor
Simply explained … it’s too expensive and it does not pay back. For example if you go with something like a Vanguard Lifecycle fund you just pay 0.15% in fees and that’s it. If you go with a financial advisor you’ll still pay the Vanguard fee and then you’ll also pay a fee to the financial advisor. You are lucky if the advisor fee is around 1% … but even this simple 1% will have a huge impact on your final wealth.
5. Set It and Forget It
We’re not day traders and we will not try and be like them. We need to automate the investment process so we can spend our time living, not managing money. What we use and suggest is Betterment …they automatically diversify you across a whole set of investments based on your level of risk. The only decision you have to make is what level of risk you’re willing to take. It’s High risk, high reward is 100% stocks and 0% is the conservative approach with all bonds.
6. Keep your Investment Over Time
Invest as much as you can while reducing the chance you’ll need to sell your investments to cover basic expenses. The goal is to always keep a few months expenses around in case something happens and invest the rest.
7. Do Your Own Research
If you want to partially invest in stocks & bonds do your research first. If you do not understand the model…do not buy. If there is something that does not convince you … do not buy. If it does not ‘feel’ right … do not buy!!
8. Be Fearful When Others Are Greedy and Be Greedy When Others Are Fearful
Famous Warren Buffet quote … pretty spot on! When everyone is a winner you should be concerned. While the best time to buy is when the world looks on the verge of a collapse. Is it a true collapse at the end? Or there are big gains hidden… DO NOT BE TO GREEDY THOUGH AND GO TO RULE 7.
What do you think? Will you invest? Let us now if you have questions!!