4 Cornerstones for Smart Investing
The right investment strategy can help you meet financial goals such as a secure retirement or an education for your children. The good news is it's easier than you might think to get started and stay on track.
Here are four simple rules of thumb to help you succeed in investing:
1. Invest early. There's never a wrong time to start investing, in fact, the sooner, the better. That's because the earlier you start investing, the longer your money will have to grow. Better yet, the longer you invest, the more time you have to ride out the market's inevitable ups and downs.
2. Invest regularly. Why struggle to cobble together a large lump sum of money to invest? Instead, start as soon as possible with an amount you can afford, and then continue investing manageable amounts on a regular basis. By spreading out your investments over time, you'll achieve a number of goals, such as:
- harnessing the power of compound growth
- reducing the impact of unpredictable market fluctuations
- benefiting from dollar-cost averaging by buying less of an investment when prices are high, and more when they're low
3. Stay invested. Despite some market volatility, it's best to stay in the market through the ups and downs. No one can consistently and accurately predict downturns and upswings, and you can end up losing money if you try. A smarter strategy is crafting a solid long-term plan of appropriate high-quality investments. That way, you'll stay committed to reaching your financial goals despite occasional market blips.
4. Diversify. There's no sure way to control the market's ups and downs but you can take charge of your investment portfolio's exposure to volatility and risk. The secret is selecting the right mix of investments. Dividing your assets among cash, fixed-income investments and equity investments ensures you maintain exposure to those asset classes that are outperforming, while minimizing the exposure to those that might be underperforming at any given time. You should always consider your risk tolerance and time horizon when allocating portions of your portfolio to various asset classes.
You don't need a large lump sum of money, or a sophisticated approach, to succeed in investing. Rather, by taking the time to think about your goals, and creating a plan to reach them, you can build a solid financial future.