By: April Carson
There's no shortage of investment advice out there. But with so much information and so many different voices, it can be tough to figure out what to do. That's why it's important to remember the basics of investing: common sense.
Fortunately, there are some basic principles that can help guide your investment decisions. These six rules of common sense investing can help you make smart choices regardless of the market conditions.
1. Have a plan.
Investing without a plan is like driving without a map. You may eventually get where you're going, but it's likely to be a lot slower - and more stressful - than if you knew where you were going from the start. According to a study by Vanguard, investors who have a written plan are more likely to achieve their investment goals than those who don't.
Creating an investment plan doesn't have to be complicated. Start by answering some basic questions, such as how much money you have to invest, your investment goals, and your tolerance for risk. Once you have a clear idea of your objectives, you can develop a strategy for achieving them.
2. Start early.
The earlier you start investing, the more time your money has to grow. That's because of the power of compounding - which essentially means that your money grows at an ever-increasing rate as it compounds, or reinvested, over time.
For example, let's say you invest $10,000 at an annual return of 8%. After 10 years, your investment will be worth about $25,800. But if you wait 20 years to start investing, your investment will only be worth about $17,300 - even though you're investing the same amount of money.
3. Invest regularly.
Another way to take advantage of compounding is to invest regularly - even if it's just a small amount of money. By investing a fixed amount of money on a regular basis, you'll be able to take advantage of dollar cost averaging, which essentially means that you'll be buying more shares when prices are low and fewer shares when prices are high.
4. Invest for the long term.
Investing is all about taking risks in order to achieve higher returns. But it's important to remember that in order to make money from investing, you need to be in it for the long haul. According to Warren Buffett, one of the most successful investors of all time, "Our favorite holding period is forever."
If you're only planning on investing for a short period of time, you're likely to miss out on the benefits of compounding. On the other hand, if you're able to invest for 10 years or more, you'll give yourself a much better chance of achieving your financial goals.
5. Diversify your portfolio.
Don't put all your eggs in one basket. When it comes to investing, diversification is key. By spreading your money across different asset classes, you'll be able to reduce the overall risk of your portfolio.
Because some assets zig while others zag, spread your investments across several investment categories, such as stocks, bonds, and real estate. Diversification also helps to minimize risk by dividing it among several areas. Risk is diversified throughout multiple categories in order to protect investors against a catastrophic loss in any one of them.
6. Review your investments regularly.
It's important to stay on top of your investments and make sure they're still aligned with your goals. As your circumstances change, so too should your investment strategy. Most financial advisors recommend that you examine your investment portfolio at least once a year to ensure it is still on track.
Review your investment portfolio every year to ensure that the types of investments haven't changed from what you originally wanted. If they have, sell any investments that have done well and use that money to invest in ones that haven't performed as well, so you can achieve equilibrium again.
By following these six simple rules, you'll be well on your way to becoming a successful investor. Just remember that investing is a long-term game, so don't get discouraged if you experience some bumps along the way. Stay the course and you'll be rewarded in the end.
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About the Blogger:
April Carson is the daughter of Billy Carson. She received her bachelor's degree in Social Sciences from Jacksonville University, where she was also on the Women's Basketball team. She now has a successful clothing company that specializes in organic baby clothes and other items. Take a look at their most popular fall fashions on bossbabymav.com
To read more of April's blogs, check out her website! She publishes new blogs on a daily basis, including the most helpful mommy advice and baby care tips! Follow on IG @bossbabymav
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