Oh. my. Lanta. There are so many things to know about investing before you actually start. And it can be overwhelming. I get it. I’m right there with ya.
After paying off over $80,000 of dollars of debt (you can read our Debt Free Story right here!) we are committed to never again be in a position to borrow money for anything.
Instead we have been building up an emergency fund to cover about six months of expenses. You can read all the juicy details about our progress in our Monthly Finance Goal Updates. As soon as our emergency fund is funded, we will begin investing more for retirement.
For now, I am learning everything I can about investing since I want to be able to do it all myself. There is no sense paying some financial bigwig to invest for me if it means losing some of my hard-earned profits with him in the form of fees. No way, Jose.
But don’t worry. I plan on sharing everything I learn with you. Aren’t you so happy we’re friends?
So far, here are seven things I’ve learned about investing that will help you shape a solid investment future.
1 – Invest in what you’re familiar with.
This is something Warren Buffett swears by. If you don’t understand it, avoid it. When the whole world is telling you to invest in tech stock, but you know nothing about the tech industry, you might end up losing a lot of money. Instead, do your research. Stick to industries and companies you know well and see a long-term future with. Do you shop all the time on Amazon? Drink Coke products all the time? Start there.
2 – Know how much you need to save to retire comfortably.
As a teacher, the first thing I do before I plan a lesson is look at my objective. What am I trying to accomplish in the unit as a whole? Start at the end goal before you make a plan. It doesn’t make sense to teach a lesson on fractions if I’m assigning a geometry test.
The same goes with investing. Know how much you need so you can figure out a plan for how you’re going to get there. This will tell you how aggressive you should be in saving, what percentage should be stocks versus bonds, and how long you should save before your retirement date.
P.S. I’m currently researching all the different opinions out there on this and I’m working on a post to help you figure out how much you should aim for in your retirement savings.
3 – Invest for the long term.
This message is given in almost every single investing book I’ve read so far. You can check out the must-read books I recommend for beginning investors here. One tip most of them have in common is planning to invest in things for the long term.
When you buy and sell and buy and sell again, you are paying more in fees AND taxes. Every transaction comes with some type of fee or expense, and everything sold or traded is taxed. So to keep more money in your pocket, and more money invested to earn compound interest, invest long term. For the most part, you should buy with the plan to hold onto your investments for the long haul.
4 – Don’t try to time the market.
Some people spend all day every day trading on the stock market, trying to time the market. Do you think if they had actually figured out how to time anything they would still be working as a broker? Nope.
Recognize that the market is an unpredictable beast. Sometimes it gets ya, and sometimes it doesn’t. Economic factors, political factors, and global factors all affect the market on any given day.
Do your research. Know your stuff. But don’t wait for the perfect time to invest. The more time you wait, the more compound interest you are losing out on. The market will continue going up and down. Historically speaking, it always does.
But waiting for the “perfect” time to invest will make you lose out on even more time, which in turn hurts the amount of compound interest you will earn.
5 – Diversify.
If you invest everything in one stock or one company and that company goes under, you lose everything! Don’t put all your eggs in one basket. Know from the get-go that you should have some in domestic stocks (US companies), large-cap (large companies), small-cap (small companies), blue-chip (very established companies), a little bit in global stocks, a small percentage in bonds, etc. If you are getting lost in all of the different terminology, you can read my list of 28 Investing Terms Every Newbie Should Know right here.
Index funds are a great tool for diversifying as well. With an index fund, you purchase a tiny portion of a bunch of different companies instead of just one. So if a few fail, the growth of the others helps lessen the risk that you will lose much.
P.P.S. If you are new to investing, the concept of index funds is a beast in and of itself. Please know I’m also working on a post to teach you a little bit more about index funds very soon.
6 – Invest regularly.
Investing a little bit here and there will not bring as great of a profit as finding a consistent strategy for investing on a regular basis. Not to mention, despite your best attempts, without a committed plan it will be really easy to find other uses for your money and end up investing less than you know is ideal.
Protect yourself from yourself. Have a plan. Invest regularly. Make it automatic. Do what it takes to make this a priority, whether it is monthly or quarterly.
7 – Don’t make decisions based off of emotions.
When the market takes a hit for whatever reason, rest in the knowledge that at some point in the long run it WILL come back. It always does. But if you panic and sell a bunch of stuff out of fear that it will plummet even more, you will lose out on a lot of potential for growth long-term. Not to mention any fees or taxes that come as a price for selling.
Hold fast to your investments. Trust that you made wise decisions based on your research. Have faith that historically, the market always turns back around. Whatever you do, don’t sell out!
On that same note, don’t invest in something without doing your proper homework. If it sounds too good to be true, it probably is. Avoid investing on impulse. Stay steady and avoid decision making when emotions are high.
There is obviously so much more to know, but these are the most common themes I keep reading again and again and again. No matter where you are in your investment journey, no matter what investment vehicle you choose is right for you, these things hold true across the board.
Investing can be intimidating. But arming yourself with knowledge will give you the confidence to make the best decisions for your family. In reality, everyone will reach a day where they can no longer work. Do what you can today to make sure your family is ready for that day when it comes.
Are there any things that stick out to you in this list? Have there been any questions on your mind about investing? I would love to hear your thoughts!