Basic Investment Tips for Beginners
1) Start early, even if it’s only a little bit and even if you have to scrimp in other places to make it happen. The thing that drives investments is the miracle of compounding. If you invest $5,000 a year from 25 to 35 then stop entirely, at age 60 you will have $615,580 from your $5,000 at an 8% annual return. If you start at 35 and invest that same $5,000 until you retire at age 60, you will only have $431,754 from a total investment of $130,000 (again assuming a 8% return). START EARLY!
2) Think long term – no matter how painful it is in the short term. The people who lose money investing are often the people looking for a get rich quick. Much was made in the Great Recession of 2008 about how people saw so much of their investments lose so much value. The only ones who actually lost money were those who panicked and pulled their money out. Since then, the market has fully recovered and is at all time highs. Real estate investments are also rapidly recovering their lost value.
3) Don’t put all of your eggs in one basket. Your cousin’s brother’s uncle’s friend might have a sure tip, but don’t go all in on it. Keep your investments diversified. Choose broad based index funds that have a little bit of money in everything. The average rate of return for the Dow Jones over the last 113 years has been a remarkably consistent 9.4% and almost any ten year period you look at in that time is about the same.
4) If you have a broker, watch to see if unnecessary trades are being made. Many brokers charge by the transaction vs a flat fee. This gives them a reason to create “churn” by making trades of individual stocks that might be under performing. It is very difficult to consistently make money by cherry picking stocks. Look at a brokers long term returns compared to an index fund. Even if they do outperform, consider the fees that will be charged and deducted from your return.
If you’re still uncertain about investments or how it could benefit you, give us a call ((214) 730-0353) so we can explain the process. We are always looking for people to invest – you don’t have to invest tons of money to see a return!