For many young professionals transitioning into a major career position with good career pay, the hardest part about responsibly handling a larger income is investing that income wisely. Investing smart now means worrying less later, as a good investment strategy will let you have a lot of freedom in your golden years and a lot of flexibility around retirement. But if you are a professional earner with some extra money to invest, where should you start? Check out our 15 rules of investment below for some insights on how to get started with the right investments for you.
1. Know the Importance of Saving
Wait…if this article is all about investing, why are we starting it off by telling you to remember that savings account? The simple facts are, saving your money has some huge benefits where stability and and consistency are returned, so as you start investing more, make sure you are keeping the savings account open as well.
In the world of investing you are jumping in to, diversification is the golden rule. Different industries and markets perform differently at different times, meaning there is huge risk in putting all of your eggs in one basket. The best, sure fire way to see your investment returns increase steadily is to spread out where you put your money.
3. Have Goals for your Money
When you are earning FOR something, rather than just for the sake of earning, you are more likely to make smart financial choices. Think about what you want next from life. A house? College for your kids? Retirement? Set your eye on that goal, and invest for it.
4. Understand your Risk Tolerance
The reason that big earners like Warren Buffett are able to clear so much from huge deals is that they can afford to take the risk. Just because you aren’t as wealthy as the Buffetts of the world doesn’t mean you can’t take risks too, but you need to be smart about how much you can afford to lose, and truly understand investment risk.
5. Understand your Timeline
When investing for a goal, ask yourself: when do you really NEED the money by? By being smart about your investment timeline, and keeping in mind when you will need to see big returns, you can be more strategic about what kinds of investments to make. There’s a big debate about short term vs. long term investing, and you’ll need to understand your timeline before taking a side.
6. Look for Low Cost Mutual Funds
When you start investing, you are surely trying to earn the most you can. But according to some industry experts, most investors lose a huge amount of their return potential by putting too much into accounts with big fees. If you want to see the most return on your money, looking for low fee portfolio options is crucial.
7. Balance Passive and Active Investment
Before jumping into the world of investing, you need to be mindful of how much time you are going to be able to spend managing your investment efforts. If you can’t take a hands on approach to your investing all of the time, look into passive options that don’t require your constant attention. But remember balance!
8. Be Mindful of Taxes
This rule is short and simple: you NEED to remember taxes when you invest. But how much you pay on tax should never be the only or primary factor in determining if an investment is smart.
9. Don’t Have Too Much Money in Any One Investment
Remember the golden rule of investing? Diversify! This is a spin on that, but a more direct one. Make sure that you never put too much money into one investment, even if it looks foolproof. Enron looked foolproof too at one point.
10. Look for an Employer Match
What if I told you you could double your investment, guaranteed, with almost zero effort? Essentially, that’s what an employee match program is, but many investors still forget that this is an option. Ask your emoloyer about matching investment programs now!
11. Paying Off Debt IS Investing
Every dollar you spend on interest to your debt obligations is a dollar lost. Paying down that debt now means less interest in the future, which is essentially one of the smartest investments you can make.
12. Don’t Avoid the Stock Market
With all of the big scares and shocks in the past decade, it’s understandable that a lot of people aren’t interested in basic stock market investing anymore. But if you ignore this option, you pass up huge potential.
13. Sell When the Time is Right
In general, most investors are better at buying than they are with selling in the market. But if you never sell, you can’t keep growing that portfolio and pursuing new options.
14. Keep Educating Yourself
Reading through this list was a great start to your investment education, but don’t stop here! Keep educating yourself as you invest.
15. Start Now!
The most important rule for investing? Start soon.