5 Best Practices to Start Investing
Investing can often seem like a confusing or overly complicated topic, yes – but the reality of the situation is that we’ve reached a point where ANYONE can begin investing, even with limited funding. Investing as a concept is all about a series of small but meaningful moves that, when taken together, add up to something much more powerful and valuable over the course of your lifetime.
To get started on the right foot, here are a few key tips you can use right away.
BEGIN AS EARLY AS YOU CAN
One of the most important tips to get into investing involves starting the process as early as you possibly can. Think about dipping your toe in the proverbial water, as there are a number of key reasons as to why you absolutely should.
For starters, investing today allows more time for your finances to grow – When it comes to accruing compound interest, time is most assuredly your friend. Starting early also likely means you have fewer financial obligations like a spouse, children or even a mortgage.
AUDIT YOURSELF
Making the right decision at the right time in ANY area is all about having the most complete, actionable information to work from. That said, there’s no better place to start than with a self-assessment! You should know all the “ins and outs” of your debt, cash flow and current (and future) liquidity needs BEFORE you start investing.
Don’t go “all in” and spend your funds on something that seems like a sure bet, because nothing in life is a guarantee. Also, ensure that you have an emergency fund set up with at least six to nine months of living expenses – this will act as your safety net.
RIDE THE WINNERS, SELL THE LOSERS
A basic rule of thumb you can stand by is to let your winners run. Research shows that individual investors sell their winners much too soon and hang onto their losers too long. Don’t let this be you! For example, if a stock is performing well, give it a chance to do even BETTER. Conversely, if an investment begins to flounder, it’s important to know when to cut your losses and move on. Sounds easy enough, right? Think about the long-term and understand that losing the battle does not mean you’ve lost the war.
ADAPT TO THE LONG GAME
Another one of the most critical learnings for you to understand is that, ultimately, you’re playing the long game and you need to act accordingly. Investing isn’t about taking $100 today and turning it into $1,000 tomorrow – if that’s what you’re after, you should probably be playing the lottery.
To make the best investment decisions, you really need to know your financial timeline – meaning what it is that you’re trying to achieve. Are you trying to help save for a major purchase in five years? Are you thinking about retirement 30 years from now? All these variables will affect your move-forward strategy.
ONLY MAKE INVESTMENTS THAT YOU UNDERSTAND
The importance of conceptualizing a thoughtfully designed, carefully constructed investment plan is something that cannot be overstated. Do your homework! Without a plan you’re flying blind – you have no idea what next year might bring, let alone how your decisions of today could impact the goals you’ve set.
Sit down and write out a plan that outlines where you’re starting, where you want to be, and why it’s important to you. Detail everything, from the purpose of each investment to your criteria about what defines a worthwhile investment in the first place. Stay informed and keep your eye on the prize.
