Successful investors agree: you can earn good profits without a lot of risk if you stick to a few tried-and-true investing basics.
First, start early. Give your funds plenty of time to grow. Say, for example, you invest $100 a month toward your newborn’s college fund. At a return of eight percent, that money will grow to about $48,000 by the time your child graduates from high school. Wait until your little baby is ten years old to start investing and you’ll have to set aside much more – over $350 a month – to accumulate the same amount by age eighteen.
Second, invest regularly. It’s a good idea to have money periodically deducted from your checking account and put into mutual funds, stocks, or bonds. This method is called dollar-cost-averaging. What you don’t see, you won’t spend. Pay yourself first.
Third, diversify your portfolio. Buying mutual funds is a great way to achieve diversity. If you plan to invest in individual stocks and bonds, consider this: The longer you can leave your money alone, the more you should invest in stocks. For added safety and liquidity, keep some bonds and cash reserves in your portfolio.
Fourth, hold down your expenses. Stick with no-load or low-load mutual funds, and beware of funds with high fees for professional management. Don’t wheel and deal very often. Commissions for buying and selling securities can take a big bite out of your returns.
Fifth, insist on quality. Familiarize yourself with the companies you plan to invest in. Beginners are advised to focus on blue-chip stocks with good track records.
Finally, be patient. The surest way to increase your wealth is not glamorous. It’s done by letting time and the market’s upward trend work for you. Remember, MONEY takes a manager!
