Don’t look for specific investment advice in this article; I leave that to the experts. However, these commonsense strategies will give you a solid foundation for long-term ”“ and successful ”“ investing.
1. Get out of debt.
If you understand that time is money, you may be highly motivated to start investing immediately so those investments will have more time to work for you. Good!
If your anxiety level spikes at the thought of taking precious time to pay off your debts before starting to invest, good again. Use that anxiety as a motivator to pay off your debts quickly. Why? So you can free up some money to invest.
The amount you are currently sending your creditors is the amount you can invest once your debts are gone. It helps to think of paying off debt as getting a great return on your money, because paying off a 15% annual rate credit card is tantamount to earning 15% on your investments.
Make a budget and set a time goal of two years or less to pay off everything except your house. Reality check: If you don’t attack it now, you will wake up 10 years from now with minimal investments and the same amount of debt.
2. Build an emergency fund.
Again, I know you are getting antsy about starting your investments but you need an emergency fund first. Why? So you won’t be cashing out your retirement nest egg when you get injured or lose your job.
Think of your emergency fund as an integral part of your overall investment strategy, much like an insurance policy to ensure that those investments will never be touched.
3. Diversify.
Your wise grandmother knew not to put all of her eggs in one basket. When you put all of your investments in one company, you are not only risking your financial future on that one company, but you will become, in an unhealthy way, overly concerned about that company”s performance.
Remember: You are in this for the long haul. Spread money around and relax.
4. Keep it slow and steady.
It is still true that the tortoise wins the race with the hare, so take a deep breath, brace for the long haul, and keep those investments slow and steady. “Get-rich-quick” is a formula for losing your shirt, so don’t even think about it.
When you invest every single month, you will, over time, balance out the ups and downs of the market. I realize this is boring, but lifetime investing is not supposed to be exciting. Keep it slow and steady.
5. Automate.
When your investments are automated, there is no emotion, willpower or discipline involved. And guess what? You will learn to live on what you have left. Make it automatic.
6. Increase over time.
Do you know what you did with your last pay raise? Most people don’t, so here is a thought: increase your investments by one half of each pay raise.
Your take home pay will still bump upward, and you will eventually discover yourself investing more than you ever thought possible.
7. Take advantage of free money.
Does your employer offer you a match for your 401(k) or 403(b)? This is free money, so make sure you contribute enough to your retirement plan to receive all available match funds.
8. Take advantage of tax-free growth.
I am speaking, of course, of the Roth IRA. Instead of getting a tax deferment as with a Traditional IRA, you pay your taxes upfront with the Roth, but get this: you will never owe one penny of taxes when you retire. Not on your investment and not on the growth.
If, for example, you invest $400 a month into a Roth for 30 years and earn an 8% return, you will have invested $144,000 and earned over $440,000, all tax-free!
Investing can be intimidating, but these tips will remove much of the confusion. Get started, use common sense, and you will be amazed at how well you do.
Let me be your investing mentor
I receive so many questions about investing and have such a heart to help people implement these common sense approaches that I created an investing course called 10x Investing. Through it I will mentor you on all aspects of my investing strategy grounded in common sense.
What other investing tips would you add? How are you doing with your investing? How could you improve? Leave a comment!
