Friday, January 24, 2014

Top 10 Tips to Successful Investing

Here’s 10 quick tips shared with me by an email, I think it's better to post it here.
1. Start Early
The only way you can make the most out of the limited time you have is to start early. The sooner you invest, the more time your money will have for growth. If you delay, you will almost certainly have to invest much more to achieve a similar result. Let the power of compounding work for you.
2. Keep Some Cash Aside
It is always a good idea to have some money set aside in case of emergencies. Maintaining six to nine months worth of living expenses will insulate you from a sure fire formula for investment loss – distress selling.
3. Know Your Risk Profile
What is the point of investing in the stock market if you are going to lose sleep, or a heart attack (whichever comes first) every time prices go through a rough patch. You need to be realistic about your risk appetite. An investment advisor can help you determine your tolerance for risk.
4. Never Forget About Inflation
Don’t fall into the false sense of security that very conservative investments might give you. The returns may look respectable at the start but not after you deduct the effects of inflation. Keep in mind that risk is not just about losing money. It is also about not having enough in the end.
5. Think Carefully About How Long You Can Stay Invested
If you plan to stay invested for a long period of time, say five years or more, then it is okay to get into the stock market and let your money work harder for you. But if you will need your funds very soon, you are going to be better off with low risk investments.
6. Spread Your Money Across Investments
Don’t put all your eggs in one basket. Depending on your goals and attitude to risk, you will probably want to spread your money across different types of investment – equities, bonds and cash. You may also want to diversify within each of these categories. An equity fund, for example, will invest your money in a variety of companies but you may want to ensure you have a range of industry sectors too.
7. Invest Regularly
Investing regularly can be a great way to build up a significant lump sum. You will also benefit from what is known as cost averaging. In this way you hardly feel the pain caused by delayed gratification since you are saving small amounts that you can easily afford.
8. Choose Your Funds Carefully
You should select investments based on your personal circumstances and goals. Don’t assume all funds investing in equities are the same – look at what a fund invests in and check if you are comfortable with its investment style and objectives. Choosing the right fund manager is nearly as important as choosing the right fund.
9. Remember That Time and Not Timing Is The Key To Successful Investing
Even the most experienced fund managers fail when it comes to timing the markets. As an investor your concern should be to have as much time as possible to stay invested. Take the long-term view and stay in a fund that you are comfortable with for as long as necessary. Successful investing is not a matter of timing but rather a matter of TIME.
10. Review Your Investment Regularly
There are a number of reasons why you might need to change your investment portfolio. Your goals might have changed over time or your resources might have changed significantly. Whatever the reason may be, your life stage will play a vital role in determining the right investment mix for you. It is prudent to review your investment once or twice a year at the very least to determine if you are still on track to hitting your goals
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