If you’re reading this, chances are you have money to invest, whether it’s your savings or an inheritance from a loved one. However, simply having money doesn’t mean you should invest it all in the same place. In fact, if you do that, you could be putting yourself at risk of losing it all in case something goes wrong. Rather than simply investing your hard-earned money without any strategy or plan in place, read on for 5 simple tips to ensure your investment strategy will pay off in the long run!
1) Protect your capital
If you’re not prepared to lose everything you invest, put it in cash. It’s rare that any investment will return more than 100% over 10 years, so if you aren’t willing to accept being down about 25%, steer clear of stocks and real estate.
Most people can cover their bases with a portfolio consisting of 30% stocks, 30% bonds, and 40% cash (or CDs), but make sure that allocation reflects your age and comfort level.
2) Don’t lose money
That’s about as straightforward as it gets. Most people know that, but few follow through on it. Don’t let your emotions get in the way of making an investment decision that could affect your retirement or other long-term goals.
Before you invest, develop an investment strategy and commit to following it—no matter what. As Warren Buffett says, I never attempt to make money on the stock market.
3) Keep it simple
The best advice is often also simple. If you’re looking to get started with investing, start by keeping things basic. You don’t need complicated investment vehicles or tricky derivative strategies to be successful. Sticking to basics helps keep costs low and can help you ride out any rough patches that may come your way in future market cycles.
4) Have patience
Stocks, bonds and mutual funds can be incredibly volatile, but that doesn’t mean you should abandon them altogether. When it comes to investing, timing is everything. Don’t become too emotional about your investments; being impatient is one of the worst traits an investor can have.
Make sure to go in with realistic expectations and try not to panic when things don’t go according to plan. Patience will bring you more success than recklessness ever will.
One of Warren Buffett’s investment mantras is don’t put all your eggs in one basket. This means it’s not wise to have your portfolio made up entirely of stocks, bonds, or mutual funds.
Diversity helps to smooth out risk because if one investment lags or collapses, you might still see gains elsewhere.