As an investor, you want to make smart decisions based on objective criteria. For instance, you may choose to invest in specific sectors of the market or opt for index funds over individual stocks. However, you decide to create your portfolio, a consistent and long-term approach is the most effective way to get the best returns.
Start Saving for Retirement Early
Before doing any of this, you probably want to get as out of debt as soon you possibly can. Afterwards, investing in a ROTH IRA or 401k as soon as you are eligible to do so can provide financial benefits both now and in the future. With a ROTH account, you pay taxes upfront and make withdrawals tax-free in retirement. Furthermore, there is no age at which you have to start taking minimum withdrawals, which means that you can allow the money to compound for a more extended period.
Stay Away From Risky Investments
You should stay away from putting your money into whole or universal life insurance. This is because the upfront and monthly premium payments don’t justify the eventual payout. Instead, you should consider investing in mutual funds as it allows for instant diversification. Index funds can also offer the same type of diversification, and you won’t feel the need to time the market as indexes have appreciated at about 7 percent a year on average over the past 30 years.
Don’t Try to Time the Market
Studies have consistently shown that investors who try to time the market lose money while those who steadily invest through market upswings and downswings come out ahead. It is almost impossible to honestly time a market top or bottom, as price action is driven by decisions made by humans. As a general rule, those decisions can be irrational. Therefore, it is better to use a dollar-cost average strategy to provide the most value.
Create an Automated Investment Plan
If possible, you should have money taken out of each paycheck and put directly into your IRA or 401k. It is also a good idea to have your brokerage take money out of your bank account and deposited into a mutual fund or other investment of your choice. By making contributions automatically, you are less likely to use the money for frivolous purposes.
Generally speaking, those who create and execute a long-term investment strategy tend to have more success in building wealth. In addition to putting money into the market, don’t forget to establish an emergency fund and live below your means to ensure your financial stability for years to come.