According to CNBC, more than 700,000 people became millionaires in 2017. And many of them did so through investing. Whether your goal is to become a millionaire or to build a sizeable income, knowing how to invest can help you reach your overall financial goals. There are some rules every investor should follow.
Invest in what you know.
There are lots of types of investments - stocks, bonds, mutual funds, IRA, real estate, to name a few. Before you get into any type of investment, do your homework to find out how that investment works. How much will you need to invest? What are the fees? What is the payout? Is it guaranteed? Who controls the return? The more informed you are, the better your investment decisions will be.
Learn to evaluate risk and reward.
When you invest, you’re putting money into something with the expectation (not the guarantee) that you’ll receive a reward. Before you get into an investment, evaluate the amount you’re willing to risk and the reward you’ll receive for that risk. Don’t take on more risk than you can afford to, regardless of the reward.
Keep your investing costs low.
While investing can allow you to grow your money at a faster rate, paying too much in fees can eat away at your returns. The more you pay in administrative and transaction fees, the less money you have for yourself. When you're investigating the best investments for your money, make sure you evaluate the fees you'll have to pay as well. Seek to minimize the fees you pay to avoid negating the return on your investment.
Buy and hold.
Constantly watching your investments can tempt you to sell prematurely whenever there's a change in the market. Investments can be very sensitive to political and economic changes and changes within a business or industry. No one can out think the market and selling too early can cost you significantly. Note your reasoning for every investment you enter and unless something fundamentally changes about the investment itself, hold your investment for the long run.
The best investment you can make is in yourself.
You can’t control the market. You can’t always predict the market. You’ll get the biggest payoffs from investing in yourself. Spending time, energy, and even money on becoming more financially savvy will make you a better investor and help you become more successful in finances and in life.
Sticking to a few investment rules allows you to become a disciplined investor and keeps you from making impulsive decisions. Don't blindly invest in anything. Do proper due diligencye even if you're using a professional financial advisor.