Investing Is Easy With The Basics
By following some simple investing basics you will avoid many financial headaches.
Step #1 – Avoid The Crowd
The same advice your parents gave you as a child about not following the “crowd” holds true with investing. If you follow the “crowd” when investing you run the risk of being disappointed. If you invest in a particular stock or mutual fund just because everyone else is investing in it you are assuming that the “crowd” knows more then you do about that investment. You also assume that they are correct which gives the “crowd” a lot of authority over your investments.
A better approach to investing is to trust your own investing smarts. Do your homework, your own research and analysis before investing money. Make your own independent financial decisions, it’s safer that way.
Step #2 – Be Willing To Walk Away
Never fall in love with an investment, it may not love you back. Stock markets gyrate up and down, so do individual corporations. Persistence is definitely the key to portfolio growth but watching a stock plummet with no response from you is pure financial suicide. Microsoft, Apple, IBM were all considered to be infallible at one time, but they are no longer considered the investment darlings that they used to be. Loyalty to a company or stock is admirable but when you want your money to grow loyalty can be a hazard.
Step #3 – Diversify ‘Til It Hurts
If you remember only one step from this article, remember this step about diversification. A well diversified portfolio is a strong one. The best financial advice you can follow is to avoid putting all of your “eggs in one basket”. In other words, do not put all of your investment money into one stock or mutual fund; instead spread that money over different investments.
When stocks rise, bonds generally fall. If you are top heavy in stocks your portfolio will be lopsided when stocks fall. But if you allocate your money between stocks, bonds, cash your portfolio will be more balanced regardless of which way the market goes. It is easy to diversify your investment mix given the fact that there are so many investment vehicles available today.