Three rules of investing for normal people
Posted in Insightson Nov 6, 2014
If there has been one reliable trend for the stock and bond markets, it is that over long periods of time, things generally go up. For someone who doesn’t know much about investing, this one, reliable trend can be utilized by these three rules:
- Invest regularly and periodically. The rule, “buy low sell high” is a dumb rule, because how do you know when stocks are low or high? Instead of trying to time the market, add additional money into your investment accounts as regular intervals, like once per month. Sometimes you will invest when the stocks are higher, and sometimes you will invest when the stocks are lower. Overall, that averages out and you avoid the risk of buying high.
- Invest in everything. Trying to pick just a handful of stocks to invest in in risky. The chance of picking a stock that will crash is too great. So instead, invest in lots of different stocks. Stocks that do great will offset stocks that do poorly. Overall, things average and you avoid the risk of buying a bad stock. Mutual funds (or ETFs) are a great way to invest in lots and lots of stocks, but many funds focus too much on a single market segment. Choose a handful of different funds that cover different market segments: different sizes of companies, domestic and international, different ages of companies.
- Choose a stock/bond ratio for your timespan of investing. Stocks are more volatile. They have more potential of going up, but they can also go way down. Over a long long term, they generally go up. Bonds are more stable. Funds containing bonds still go up and down, but not as much as stocks. Generally, bond funds go up over shorter periods of time. If you want bigger gains over longer periods of time, you should invest in stocks. If you are ok with smaller gains because you need to withdraw sooner, then you should invest in bonds.
I know of a couple of good platforms that can get you started investing quickly and without a lot of money. But I don’t want to discredit this post as a shill for a particular service. If you are interested, leave a comment and I’ll email you directly.