If you’re new to investing, it can be overwhelming to try and figure out what to do. There are numerous strategies to consider, there are myriad investing vehicles or assets you can buy and trade — in all, it can seem like too much. That can leave you paralyzed, and in some cases, perhaps sitting on the sidelines even when you know you should be putting your money to work.
But it doesn’t need to be so complicated. You can look at some of the most successful investors in history, like Warren Buffett, and see that he used a deceptively simple investing strategy to accumulate billions and billions of dollars. While you may not ever become a billionaire — or anything close to it — you can use some very simple investing guidelines to help improve your chances of reaching your financial goals.
No matter where you are in your investing journey, here are three key, and simple rules that can help guide your investment decisions.
1. Invest for the long term
Depending on how much time you have (your time horizon), you should probably be investing for the long term. That means taking a “set it and forget it” approach to investing — putting your money into a variety of investments and letting it grow over time. That also means paying less attention to your portfolio than you may be comfortable with.
On a day-to-day, week-to-week, and even month-to-month basis, your portfolio is going to see its value increase and decrease. It can be maddening trying to keep up with it, and many investors don’t have the emotional fortitude to roll with the punches. But if you were to check in on your portfolio say, once every five years, you’d likely see a long-term trend of increasing values.
So, with that in mind, invest for the long term!
2. Invest broadly
Another important rule: Diversify your portfolio. Or, in other words, invest broadly.
If you’re familiar with the phrase “putting all of your eggs in one basket,” you know that dropping that basket will destroy your entire cache of eggs. The same principle exists in your investing portfolio. If all of your investments are in a single stock or sector, a significant event deeply affecting that company or sector is going to wreck your portfolio.
But if you invest in a variety of different things — stocks, bonds, ETFs, currencies, commodities, real estate, etc. — something happening to a single company likely isn’t going to have much of an impact at all on your portfolio.
Diversification: It’s critical!
3. Invest often
Finally, use the idea of “dollar-cost averaging” to your advantage. That means investing what you can, when you can, and often. Over time, you’ll mitigate risk in your portfolio, and you won’t be throwing lump-sums behind certain investments. Plus, the more you invest over time, the less it’ll feel like a chore or huge expense, and the more you’re likely to accumulate in the long run.
Again, this is all fairly simple stuff, but these guidelines can be highly effective, particularly for new investors. That doesn’t mean you can’t incorporate more complicated measures into your strategy, but these three investing rules can be a great starting point.
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