Is investing important to you…yet you’re feeling extremely underqualified every time you make an investment decision? Do you constantly question if you’re doing any of this correctly?
Rest assured, you’re not alone. Investing can be a confusing topic (especially for most people who have little to no investing education). There’s a lot of jargon and investment advice being thrown around. And quite honestly, the average person can understand very little of it.
At TruthPoint Financial, we like to give you bite-size investment education that is easy to learn and digest. So, if you’re wondering where to even start as an investor, here are five investing habits you can begin right away.
1. Start early
When should you start saving for retirement? Most people already know the answer to this question — the earlier, the better, right?
Yes, it’s always better to start early. But why? Here’s a great example that clarifies why starting now will benefit you in the end.
Let’s say two people start saving for their retirement at the same time. Lacey is 22 and Jordan is 32. They both put $5,000 away every year and earn 6% annually on their investments. At the age of 67, both stop putting money into their retirement accounts.
According to these calculations, Lacey will save $1,063,717.57 while Jordan will only save $557,173.80. Yes, Lacey will almost double Jordan’s amount simply because she started saving 10 years earlier.
This is the power of compound interest. It’s interest earned on interest and over time, it really adds up. If you haven’t started investing, don’t put it off any longer. The sooner you start, the more you’ll have in retirement.
2. Maintain a long-term perspective
Investing is not a “get rich fast” scheme. In fact, it takes a considerable amount of patience. If you want to be a successful investor, your focus should always be long-term — yes, even during market volatility. Or maybe we should say, especially during market volatility.
Markets will always experience fluctuations, and yes, there may be times when you see your investments drop. However, do not let this deter your long-term approach. To really understand how this works, let’s take a look at the years 2018 and 2019. In 2018, the S&P 500 was down 6.2% and the Nasdaq fell 4%. However, the following year (2019) saw a total return of 31.5%. This is just an example, but it shows how quickly the market can rebound.
Over 30 years the average return on investments is about 5% annually. When the market experiences a speed bump, remember this: it’s only temporary. Remain committed to your investment approach and goals. And most importantly, don’t make any impulsive decisions.
3. Set clear goals
Before jumping straight into investing, make sure you first set some well-defined goals. Why is this so important? First, it helps clarify why you’re investing. If you don’t have a purpose for your retirement years, it’s easy to lose your focus.
Begin by defining your “why.” Then, define some goals for you to get there. This will give you a clear focus and motivate you to stay on track with your investing.
Here are some examples of retirement goals:
- Pay off the mortgage and buy an RV to travel the U.S.
- Give money and time to your favorite non-profit
- Invest in health now, so medical bills won’t be as high in retirement
4. Create a diversified portfolio
Diversification is a key principle for successful investors. This term may feel a little intimidating, but it’s actually a relatively easy concept. If you break it down, “diversification” comes from the word “diverse,” which simply means variety.
So when it comes to your investments, diversification is the idea of spreading your money across multiple investments.
You’ve probably heard that old saying, “Don’t put all your eggs in one basket.” In other words, don’t put your money all in one investment, because if it fails, you’ll lose everything. When you diversify your investments, you reduce risk while still allowing your money to grow. It also helps protect your portfolios during market volatility.
5. Educate yourself
You don’t have to be a financial industry expert to be a successful investor. What you should have, though, is the desire to stay informed and educated on industry developments. You should know when to make a move — and when to be patient and wait.
Start by understanding financial terms and how the market works. The more you know, the more confident you’ll be with your investment choices. If you need a helping hand, TruthPoint is happy to take you through some investing basics.
Seek professional advice, when needed
While many successful investors take a hands-on approach, some prefer the guidance of an advisor. TruthPoint Financial is happy to help answer your questions and guide you to a place where you eventually feel comfortable making decisions on your own. We know this topic can be confusing, which is why we’re passionate about educating our clients every step of the way.
Ready to start the conversation? Give us a call today.