Three Basic Investing Principles to Live By

Let’s face it, we’re not patient when it comes to making money. We want it now and we want more of it now.

What can I do to make more money?

Investing it is a sound principle. But once you start investing you’ll stumble on another big question – what can I do to grow it faster?

Often people complicate the process. Our lack of patience leads us to hunt for shortcuts. But fundamental investing principles aren’t about speed. They’re about making a return and doing it efficiently.

Here are 3 basic investing principles that I’ve learned to adopt and live by.

Invest as much as comfortably can

There’s no quicker way to building more wealth than spending less and saving more. In fact, you should always be on the hunt to save more. Be proactive and take a look at your monthly expenses – see if there are any opportunities to cut spending. Don’t be afraid to shop around, and never hesitate to ask for an additional break.

I’ve found that the only effective way to actually find out how much more you can afford to invest with is to force yourself to save more. So if you’re currently investing 5% of your income, try investing 10%. If that’s too big of a jump, do 1% increments.

See how it affects your lifestyle. You may discover that you don’t miss the money, and you’ll be thanking yourself when you get older.

 

Diversify

You’ve heard it before, and I’ll reiterate. Don’t put all your eggs in one basket.

By allocating your money across various asset classes such as equities, fixed income, cash equivalents, and even alternative investments you build a balanced portfolio.

By diversifying within each asset class you help reduce your risk.

We live in a wonderful time, where the price of diversification has fallen to an all time low. Information is abundant and opportunities are present through numerous channels.

One of favorite investment opportunities is low cost exchange traded funds (ETFs) which make it easier than ever to invest in liquid instruments containing global asset classes. ETFs themselves are diversified.

 

 

What are exchange-traded funds (ETFs)?

ETFs are funds that track indexes like the NASDAQ-100 Index, S&P 500, Dow Jones, etc. When you buy shares of an ETF, you are buying shares of a portfolio that tracks the yield and return of its native index. The main difference between ETFs and other types of index funds is that ETFs don’t try to outperform their corresponding index, but simply replicate its performance. They don’t try to beat the market, they try to be the market.

 

Choosing stocks from a variety of industries or market capitalization and different bonds, real estate investments, commodities or even currencies can help you weather any inbound market volatility.

 

Stay the Course

Be realistic with your goals. Investing doesn’t mean more money today. But it can mean saving away for retirement or a short-term goal like a vacation away or a down payments for a house.

Be aware that markets are susceptible to volatility. Staying the course means your a cool and collected investor who doesn’t make decisions based on emotion.

Yes, investing is emotional. Anyone saying otherwise is a fool. Watching your hard earned money ride the wave of the market is sure to cause you panic – especially when negative effects on your retirement income are inbound.

But realized that a long term investment strategy means building a plan and keeping to it. Remove your emotion from the equation. You should be investing regularly and re-evaluating your investment strategy periodically. This can mean placing larger holdings in particular industries or market sectors that you feel confident in. It means reading as much material as you can to make the best decisions. And it means following your gut.

 

Building wealth is about how you behave.

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