Best 5 Investing Tips You Can Start Now
Best 5 Investing Tips to Start
1.) Focus on Long-Term Investing and Not Short-Term Investing
Long-term investing means to hold an investment for more than one year and selling it afterwards. Short-term investing holds an investment for one year or less and sell it during that period.
There is nothing wrong with doing short-term investing. However, long-term investing is more beneficial than short-term investing. It’s up you to decide what’s best for you whether to invest in the long-term or short-term.
With long-term investing, you will more than likely increase your investment returns rather than selling out in the short-term.
Historical data on market indexes like the S&P 500, DOW JONES, and NYSE Markets have proven higher returns as time passes
This chart represents the S&P 500 market price. It has continuously increased more even if the economy is in a recession. The market price for the S&P 500 rebounds later and continues to grow to this day.
Investing in individual companies like Facebook, Amazon, or Apple isn’t the same as investing in the market.
When investing in individual company stocks, you will need to do more research to determine if a company is worth investing in and will continue to grow further in the future.
If you’re under 40 years old, then you have the potential for long-term investment to work in your favor. However, if you’re older or going to retire soon, then seek other alternative investments. Investing in the stock market is volatile, as shown in the chart.
There are some years where the market price drops and doesn’t return to its original price for a few years. You don’t want to be stuck with your investments that reduce in value during your retirement.
An added benefit to holding long-term investments is you’ll pay less on capital gains tax compare to short-term.
Long-term capital gains are taxed either 0%, 15%, or 20% depending on your level of income. As for short-term capital gains, you will be taxed between 10% – 35% based on your level of income as well.
2.) Contribute to Your Retirement Accounts
You may think you don’t need to contribute to a retirement account as it will be a long time before you’ll retire. However, most people regretted they didn’t invest in their retirement account earlier.
As one gets older, there will be many unexpected circumstances where having retirement money can relieve financial burdens. Health complications may occur where you’ll be unable to work during your retirement age.
What separates retirement accounts from other investments is paying fewer taxes owed. Retirement accounts incentive you to contribute to the retirement account.
Also, it discourages from withdrawing from your retirement fund by putting penalty fees, unless it’s for certain exceptions that are associated with that retirement account.
The more you contribute to the retirement plan, then it will build up your investment returns, depending on the type of investments associated with your retirement fund.
If you invest more than the contribution limit of that retirement account, then you’ll pay an excise tax penalty. The amount is typically 6% that’s excess of the contribution limit.
You should maximize your retirement account each year, but, understandably, not everyone can do this. Set a percentage of your paycheck to contribute to a retirement fund.
You’ll be taking the hassle away from remembering to invest in your retirement account. Don’t rely on Social Security checks when you retire. Social Security checks don’t replace working income when you retire.
Your Social Security payments you will receive varies from the age you apply for Social Security and the average level of income over 35 years.
3.) Diversify Your Investments
Spread out the type of investments you own. Don’t invest in only one company. There is a wide range of investments from stocks, bonds, industry, real estate, cryptocurrency, precious metals, cash, and much more.
You want to do this because it reduces the risk of one’s investments from decreasing in value.
Imagine if you fully invested in say, oil stocks, but the oil industry has been declining, and the stock price continues to decrease. It’s a risk of investing in one company or industry instead of investing in other type of investments.
Investing in multiple companies and industries offsets the risks, and increase your rate of return when it increases in value.
There is no clear answer as to how much investments you need to be considered diversified. Multiple studies provided different answers as to how much you would need to invest, ranging from 50, 30, or between 12 – 18.
You can invest in a mutual fund or index fund that focuses on investing in an overall market. This type of investment is already diversified as it accounts for multiple companies and industries.
4.) Invest Consistently than Timing the Market
Dollar-cost averaging “investing consistently” has proven to be an optimal strategy than timing the market. Investing consistently means you would invest a fixed amount of money periodically despite what’s happening in the market.
While timing the market, means waiting for the right opportunity to buy or sell that is very beneficial for you.
An example of timing the market is buying when a stock price decrease $100 or selling when a stock price increases to $100, while accounting for the overall value.
Investing consistently is a long-term investing strategy that takes away the guessing when to invest. You will continue to invest no matter if your investment price increases or decreases. Your investment will likely continue to grow if it’s diversified.
On average, the S&P 500 gives an average rate of return of 7% while accounting for recessions and market declines as it rebounds and continues to grow.
Investing consistently doesn’t require you to be actively watching the markets for the right moment to invest.
Timing the market is very difficult, and no one can predict the market price. People who try timing the market will fall into a psychological dilemma.
When the market price moves out of an investor’s favor, they wouldn’t be sure to invest or hope it moves back. Eventually, the investment may move back to its original pricing, and the investor didn’t invest.
5.) Buy Low and Sell High
Buy low and sell high is a fundamental concept most people tend to overlook when investing. You want to buy when prices are low and sell for more than what you invested. Sounds simple but most people let their emotions get carried away.
People panic when they see their investment decrease in value and sell. Then after seeing their sold investment increase in value from their initial purchase, they purchase it again, causing them to lose more money.
You must be patient and not panic when your investments decrease in value. More often than not, it will correct itself and increase and may grow even more.
However, in some situations, your investment may not recover and continues to decline further.
You must decide if it’s best to sell your investment and take small losses or hold onto the investment in hopes of the price recovering.
Don’t let your emotions control how you invest. Look at other variables and see if you’re losing on your investments. Take a look if the industry is affected altogether, the overall market, and other factors.
Spend time doing research and learn more about your investments to feel confident it will get through and grow.
