Top 5 Money Secrets
The following 5 money secrets will show you how easy money management can be if you just follow the basics. You do not need to be a financial whiz to get rich. You just need to follow a few key financial principals. The number one basic secret is that you need to be committed to completing what you start. If you want to change your financial situation you need to promise yourself to apply the money secrets you learn even if it gets financially painful at times. You are in charge of your financial life so you get to determine the direction you will be taking it. If you truly want change, it starts with you.
#1 – Skip The Fancy Stuff
Don’t kid yourself, when you place your money into an investment all you basically care about is the growth potential. In other words, how much money will you make.
To determine if a stock or mutual fund is a good investment skip all of those fancy investment ratios and formulas that the experts rattle off. The price/earnings ratio, earnings-per-share and price-to-book ratio are way too complicated and will only muddle up your investment perspective. There is an easier way to analyze your investment’s approximate growth potential.
Simply compare your rate-of-return with your total investment cost. And your investment cost is simply your original purchase price plus annual fees. If you paid out more than you are earning, the growth potential may not exist. But approach with a bit of caution, do not be over eager to sell. If you are always pulling the sell trigger you will not give your investments a chance to prove themselves. Pick a number and make that your safety stop figure. Once the investment price drops to that price you will consider selling it. That keeps the emotions out of it.
#2 – Avoid Bad Timing
If you want to avoid bad timing there are two money secrets you should always keep in mind. One, never fall in love with an investment. Two, do not allow fear to dictate your financial moves.
Most investors do not deliberately buy their investments at the highest price and then wait to sell them at the lowest price. This situation seems to happen when someone invests with their emotions instead of using common sense. Investors push the panic button too soon, for buying as well as selling. Just because the entire world thinks buying Apple stock is a good idea does not mean that you should follow the pack. But of course your emotions would say yes, buy, buy, buy. However, common sense should say that $500 for one share of Apple stock might mean that stock has hit its all time high. In which case that stock can only drop in value in the future and you are left with an all time enormous financial loss.
Always, always trust your instincts; stick with common sense. Emotions are great at weddings and other celebrations but can be very dangerous when buying and selling investments.
#3 – Mix It Up, Reduce The Risk
If you want to reduce your investment risk, work on finding the right investment mix. You cannot personally control market fluctuations but you can control where you invest your money.
When you hear the financial experts talk about a diversified investment portfolio, take a deep breath, it is not that complicated. All that means is putting your money into a variety of investments so as to spread the risk around and reduce the impact of market fluctuations. Generally when one segment of the market goes up, other segments go down. So if your investments are spread out you will offset those ups and downs. If you diversify you will bring balance and reduce your investment risk. You can diversify by spreading your money amongst large, mid and small cap mutual funds, balanced and worldwide mutual funds, some stocks, bonds and even the money market.
#4 – Invest In What You Know
Your financial goal is to grow your money, right? Well, the best way to grow your money is to stick with what you know.
The investment choices available today seem endless. With so many investments to pick from, how do you know what to pick? Reduce your confusion; buy investments that you understand and are comfortable with. If you are always worried or preoccupied about an investment, it’s probably the wrong investment for you. If you have absolutely no experience with convertible bonds or preferred stocks then stay clear of them. If you are well versed in corporate or government bonds or are very comfortable with blue chip stocks then go for it. If you know everything there is to possibly know about coffee or door knobs, invest in companies that make coffee or door knobs.
If you are a new investor, go slow so as to not become overwhelmed and drop out. Maybe start with a basic, low-cost mutual fund. Invest a little money at the beginning and then as you read up on investments and become more familiar with them, perhaps you can increase your investment amount.
#5 – It’s An Age Thing
Once you retire full-time, your cash flow, in other words, your paychecks will stop. And after the paychecks stop, your investments will be your most substantial source of financial support. So as you get closer and closer to retirement, you should be more protective of your retirement funds and avoid the risk of your portfolio dropping in value. Safety is the reason why many investors tend to shift the mix of their portfolio at retirement towards more stable investments. Bonds, money markets and certificates of deposits are generally more stable than stocks and mutual funds. Younger investors who are far from retirement generally hold more stocks while older investors, closer to retirement, lean towards bonds, money markets and CD’s.
Money management can seem a bit overwhelming at times but it does not have to be. If you just stick with the basics, follow the 5 money secrets and avoid your emotions when investing you should be in good shape. To stay on the right track avoid impressing others or yourself with fancy money charts, stock analysis newsletters or annual reports. Those fancy trimmings only embellish the numbers they will not grow your money any faster. You are responsible for growing your money, get to it.