10 Investing Tips To Help You Reach Financial Independence
10 Investing Tips To Help You Reach Financial Independence
Author Bio: Jon helps readers pay off debt and build wealth so they can achieve their dreams. You can start your journey to better finances at his personal finance blog.
Do you want to achieve all of the financial goals you set for yourself? Does the idea of reaching your goals seem overwhelming?
I’ve been in your shoes.
When I first started out, I didn’t think it was possible to change my financial life. I was in $10,000 of credit card debt and struggling to get by.
But I slowly made progress and the one thing that helped me the most was investing my money.
When I started investing my money, I slowly began to grow my wealth.
Now I am debt free and have close to seven figures saved with no plans on stopping.
But how do you invest in a way that will allow you to be successful?
In this post, I am going to share with you the 10 investing tips I use to help me grow my wealth. I am certain if you follow them, you too will see success.
10 Basic Investing Tips To Help You Reach Your Dreams
#1. What Are Your Goals
The first investing tip is to make sure you know why you are investing. By skipping this step, you are setting yourself up for failure.
The reason for this is simple. Even though you may be interested in investing today, without any clear goals, you will lose interest in the coming days or weeks.
Something else will catch your attention and you will forget about investing completely.
So sit down and understand why you are investing in the first place.
Is it to retire early? To buy a house? To have a fortune to donate to worthy causes?
Whatever the reason is, you need to figure it out.
#2. Know Yourself
The next important investing tip is to know yourself. This means understanding how much risk you like to take with your money.
Unfortunately, this can be tough to do because you truly don’t know how risk adverse you are until you are in the thick of things.
Luckily, there are some things you can do now to get a better idea of your level of risk and put tools in place to make sure you invest in a way that will allow you to sleep at night.
First, you should fill out a risk tolerance questionnaire. I like this one from Vanguard the best.
It is simple to follow and doesn’t take a lot of time.
The only problem with it (and most risk tolerance quizzes), is that it doesn’t completely take human emotions into account.
For example, if you found $20 on the sidewalk you would be excited. But if you lost $20, you would be devasted.
Human beings are wired to feel losses more than wins. So even though it would be great to turn $100 into $100,000 you have to understand the risk involved.
Now that you know this, go back through the quiz and focus more on the questions that talk about losing money and don’t answer with your logical side, but let your emotions guide you.
#3. Create A Plan
Once you have your goals for investing and you know yourself, it is time to build a plan.
This plan is critical to your long term investing success.
This is because when the market drops, you will be tempted to sell your holdings or do rash things.
But this is the worst thing you can do. You never want to sell when stocks are losing value. You want to sell when stocks are gaining value.
When you have a detailed investment plan that spells out the reasons why you are investing, what you are investing in, and more, you have a document you can turn to when times get unsettled.
Think back to a time when life was crazy and you didn’t know what to do. You probably had a tough time pushing your emotions to the side and making a rational decision.
Now think if you have a detailed document that spelled everything out for you. Wouldn’t that have made the entire experience easier to handle?
This is why you need an investment plan.
#4. Start Now
When should you start investing? Right now.
Do not wait for the perfect buying opportunity. In reality the perfect buying opportunity is right now.
This is because the moment you start investing, your money starts to work for you by compounding and earning dividends and interest.
If you wait, you miss out on this.
Added to this, you cannot predict where the market is headed. I know people who sold out of everything after the Great Recession and didn’t buy back in until a couple of years ago.
They missed out on a huge run up in the market, all because they thought they were smarter than the market.
No one knows what the market is going to do on a day to day basis. Not even professional money managers.
So make sure you start investing today.
Finally, don’t fall into the trap of thinking you need to a lot of money to invest.
There are many online brokers out there that allow you to invest for very little money and even allow for fractional investing.
The bottom line is you need to start investing today and not wait for the perfect buying opportunity.
#5. Ignore The Noise
What derails most investors is all of the news and commentary on the stock market. Many great investors refer to this as noise.
It is called this because it confuses you into doing things that you shouldn’t otherwise be doing.
At the end of the day, the best thing you can do is nothing other than keep investing your money.
Don’t listen to the man on the radio about the sky falling. Don’t listen to your Uber driver about an unknown stock that is going to make you a billionaire.
Ignore all of it.
It is all there to deter you from your ultimate goal of growing your wealth.
Just remember this. At the end of the day, Wall Street is out to make money. They make money by charging you fees to invest.
When you buy and sell, you pay fees and commissions. Therefore, it is their goal to get you to take action.
The media has a goal of income too. They make their money from advertisements. The more people they get to watch their shows, the more money they charge advertisers.
So they get you emotionally hooked to keep watching. Every news story is breaking news. They use specific colors, headlines and images to keep you watching.
All this feeds into your emotions and you react.
Your goal is to learn to ignore it. Turn it off. Do something else.
If you have to watch, remember to keep things in perspective and don’t make any emotions decisions.
#6. Find Ways To Invest More
As important it is to start investing now, an overlooked investing tip is to keep investing more money. The more money you can invest, the faster compounding takes over.
When you first start out, you won’t be earning much money from compounding. But as your balance grows, compounding takes over and has a huge impact.
For example, when I first started to invest, my money was slowly growing. I was earning a few dollars a month.
Fast forward to today and compounding is the main driver of my increasing wealth. I earn more in interest and dividends than I invest now.
And soon, I’ll be earning enough that it will completely replace my income.
But I never would have gotten here if I didn’t make the point of investing more money.
#7. Review Annually
After you have your investment account set up, you need to make sure you review it on a regular basis. I like to check my portfolio annually.
I simply open an excel spreadsheet and compare where my money should be invested based on my investment plan and where I actually stand.
Then I make adjustments to get back to my original plan.
This step is important because without doing this, you could be taking on too much risk or not enough risk.
For example, if the stock market had been rising in value, odds are your equity holdings now make up a larger percentage of your portfolio than you planned for.
This can mean you are taking on a lot more risk and if the market drops, you could lose a lot of money. The result is you need to make an adjustment.
The same is true on the other end as well. If you have too much in fixed income, you aren’t going to get the return you need to reach your goals.
By doing nothing, you will wake up one day and realize you need to keep working or dial back your goals.
Neither example is acceptable, so make sure you review your portfolio annually so you can make any needed adjustments to stay on track.
#8. Make Adjustments
Taking the above investing tip one step farther is to make larger adjustments as life happens. As great as your investment plan is, we all know life happens.
You might get married and have kids. You might fall in love with traveling and want to travel during retirement.
Because life happens, you need to be open to revising your investment plan and your portfolio. I tend to review my overall plan every few years, unless a major life change has happened.
By doing this, you ensure you are always saving for your ultimate goals.
#9. Educate Yourself
I like to say investing is simple. Understand your risk tolerance, build a diversified portfolio and keep adding to it.
That is all there is to it.
But you still need to educate yourself. You don’t need to go back to school and get a degree in finance, but rather stay on top of what is happening.
Has new tax legislation gone into effect? Learn how it may affect you and what you can do about it.
By staying on top of things, you don’t risk losing any money by simply being ignorant.
Additionally, read personal finance blogs and articles.
They offer great stories and examples of ways people are thriving financially. You may find some interesting things to think about and see if they can fit into your plans to grow your wealth faster or smarter.
#10. Be Patient
Finally, you need to be patient when investing your money for the long term. You aren’t going to get rich overnight. It takes times to grow your wealth.
But you can speed up the process by making it a point to keep your expenses in check and saving and investing as much as you can each month.
When you do this, you increase the power of compound interest taking control sooner rather than later.
At the end of the day, following these investing tips will help you to grow your wealth. By having a plan and sticking to it, you lower the chances of getting caught up in the moment emotionally and making decisions that will hurt you financially.
Take the time to develop a plan and then start investing as soon as possible. The sooner you start, the sooner you can experience financial freedom.
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