Investing
For Dummies
Helps
Investors
Become Smarter
Here are 20 tips to improve your portfolio
Did
you know that Americans on average save less than five percent
of their income? Even if you are one of the few who have managed
to stash large savings away or have received an inheritance,
you still need to make the most of your money. With lower job
security these days, an entrepreneurial workforce, more self-directed
retirement plans, and more options for investors, it's time each
of us takes control of our finances and learns how to invest.
"More
and more people are stepping into the investment markets for
the first time," says Eric Tyson, author of Investing
For Dummies®, 2nd Edition. "And because of high
returns, some investors have unrealistic return expectations."
With
updated coverage of everything from Internet brokerages to information
sources, this friendly guide shows you step-by-step how to assess
your financial situation, gauge risks and returnsand make sound,
sensible investment choices. It's the book you need to start
building wealth!
Investing
For Dummies is an invaluable investment for anyonewhether you
have $100, $10,000 or $1,000,000 to invest. Here are Tyson's
top twenty investing themes which run throughout the book:
1.
Saving is a prerequisite to investing. Unless you have wealthy,
benevolent relatives, living within your means and saving money
are prerequisites to investing and building wealth.
2.
Risk and reward go hand in hand. The way that people of all
economic means make their money is to take risks by investing
in ownership assets, such as stocks, real estate, and small business,
where you share in the success and profitability of the asset.
3.
Be realistic about expected investment returns. Over the
long-term, 10 percent per year is about right for ownership investments
(such as stocks and real estate). It is possible with running
a small business to earn higher returns and even become a multimillionaire,
but years of hard work and insight are required. Those who are
piling into today's U.S. stock market expecting the 20+ percent
annualized returns of the 1990s to continue will be disappointed.
4.
Think long-term. Because ownership investments are riskier
(more volatile), you must keep your long-term perspective when
investing in them. Do not invest money in such investments unless
you plan on holding them for a minimum of five years, and preferably
a decade or longer.
5.
Match the time frame to the investment. Selecting good investments
for yourself involves matching the time frame you have to the
riskiness of the investment. For example, for money that you
expect to use soon within the next year, focus on safe investments
such as money market funds. Invest your longer-term money mostly
in growth investments.
6.
Diversify. Diversification is a powerful investment concept
that helps you reduce the risk of holding more aggressive investments.
Diversifying simply means that you should hold a variety of investments
that don't move in tandem in different market environments. For
example, if you invest in stocks, invest worldwide, not just
in the U.S. market. You can further diversify by investing in
real estate.
7.
Ignore the minutiae. Don't feel mystified by or feel the
need to follow the short-term gyrations of the financial markets.
Ultimately, the prices of stocks, bonds, and other financial
instruments are determined by supply and demand, which are influenced
by thousands of external issues and millions of investors' expectations
and fears.
8.
Allocate your assets. Besides your individual investment
choices, how you divvy up or allocate your money among major
investments greatly determines your returns. The younger you
are and the more money you earmark for the long-term, the greater
the percentage you should devote to ownership investments.
10. Do your homework before you buy an investment. You work hard for your money, and many investments cost you to buy and sell. Investing is not a field where acting first and asking questions later works well. Never buy an investment based on an advertisement or a salesperson's solicitation of you.
11. Keep an eye on taxes when choosing investments. Take advantage of tax-deductible retirement accounts and understand the impact of your tax bracket when investing outside tax-sheltered retirement accounts.
12. Consider the value of your time and your investing skills and desires. Investing in stocks and other securities via the best mutual funds is both time-efficient and profitable. Real estate investing and running a small business are the most time intensive investments.
13. Where possible, minimize fees. The more you pay in commissions and management fees on your investments, the greater the drag on your returns. And don't fall prey to the thinking that "you get what you pay for."
14. Don't expect to beat the stock market averages. If you have the right skills and interest, your ability to do better than the investing averages is greater with real estate and small business than with stock market investing. The large number of full-time, experienced stock market professionals makes it next to impossible for you to choose individual stocks that will consistently beat a relevant market average over an extended time period.
15. Don't bail when thinks look bleak. The hardest time, psychologically, to hold onto your investments will be when they are down. Even the best investments go through depressed periods, which is the worst possible time to sell. Don't sell when there's a sale going on; if anything, consider buying more.
16. Ignore soothsayers and prognosticators. It's nearly impossible to predict the future. Your long-term investments should be based on selecting and holding good investments, not trying to time when to be in or out of a particular investment.
17. Minimize your trade. The more you trade, the more likely you are to make mistakes. You'll also suffer increased transaction costs and higher taxes (for non-retirement account investments).
18. Hire advisors carefully. Before you hire investing help, first educate yourself so that you better evaluate the competence of those you may hire. Beware of conflicts of interest when you consider advisors to hire.
19. You are what you read and listen to. Don't pollute your mind with bad investing strategies and philosophies. The quality of what you read and listen to is far more important than the quantity. Learn how to evaluate the quality of what you read and hear.
20. Remember the following highest-return, lowest-risk investments. Your personal life and health are far more important investments than the size of your financial portfolio.
