7 Rules of Investing
By Michael Vaughn, CFP®
Is investing an art or a science? If you want to succeed in investing, does it take a set formula or skill and talent? Either way, investing can seem intimidating and overwhelming. But you don’t have to just cross your fingers and hope for the best. Whether you choose to purchase stocks and bonds, contribute to a retirement account such as a 401(k), or even invest in real estate, there are rules to investing wisely, and following these 7 rules of investing will help put you on a path toward reaching your goals—hopefully without headaches!
1. Manage Your Emotions
Behavior is a major factor in investment success. By being aware of your emotions and knowing your behavioral pitfalls, you can avoid many potential investment mistakes caused by panic. Finances are an integral part of our lives, and it’s difficult to separate them from our emotions, but your nest egg will thank you if you can learn to take your time when making decisions and stay strong and committed when the market feels like a roller coaster.
2. Stay Away From Predictions
Wouldn’t it be wonderful to have a crystal ball to predict where the markets will go or what the economy will do? Unfortunately, it’s not that simple. Don’t worry about what you can’t control, but channel that energy into focusing on the factors you can impact, such as the types of companies or funds you invest in and how much you save. On that same token, don’t make your investment decisions only based on past performance. Just because a mutual fund blew everyone away last year doesn’t mean it will thrive this year.
3. Invest for the Long Term
You may want to check financial tasks off your to-do list in a hurry, but remember, investing isn’t a race. It may take time for you to reach your goals, and if you go in with that mindset, you may see more growth and you can celebrate the small victories along the way.
4. Control What You Can
It’ll be easier to stay committed to your long-term plan if you control what you can and let go of the rest. That’s why it’s important to clarify your goals, needs, and time horizon and design a plan tailored to your unique situation. Having an investment philosophy and strategy will give you purpose when hard times come. Your reason for investing could be to save for retirement, put aside money for college tuition, or save for a down payment on a home. Knowing your purpose makes the journey more meaningful.
5. Avoid Unnecessary Risk
All investing involves risk, but that is neither a reason to avoid investing nor a reason to throw all caution to the wind. The level of risk you take should correspond to your age, time horizon, and goals. Your portfolio isn’t the place for speculation or bets, and your plan should reflect your risk tolerance.
6. Start Now
Since investing is a marathon, time is on your side. The longer you allow your money to sit in an investment account, the more time you’ll have to reap the benefits of compound interest. Don’t save investing for the future when you feel more prepared. Each year you wait means you’ll need to save more in a shorter amount of time.
7. Broaden Your Investments
It’s drilled into us pretty regularly that we need to diversify our portfolios. Since investing is never a guarantee, you may want to consider investing in various formats and companies to help reduce your risk of loss. That way, if a company goes down or an industry tanks, you don’t lose all your money at once.
Rules to Live (or Invest) By
Investing doesn’t have to be complicated, and it doesn’t have to scare you. If you want to pursue a positive investment experience and implement these tips into your investment strategy as you pursue your financial future, our team at Pinnacle Family Advisors would love to help. Schedule your complimentary introductory meeting by emailing me at [email protected], calling (417) 351-2942, or using my online calendar to start taking control of your money and stay informed about your investments.
Michael Vaughn is a CERTIFIED FINANCIAL PLANNER™ professional and Vice President at Pinnacle Family Advisors (PFA) with 20 years of industry experience. Before joining the PFA family, he served clients with investment management and retirement planning at The Mutual Fund Store for 14 years. Michael graduated from Missouri State University with a bachelor’s degree in business administration and management and earned his CFP® certification in 2004. He also served 20 years in the Missouri National Guard, retiring in 2007 as a Major. He currently volunteers on the board of directors for Good Dads and Fellowship of Christian Athletes. Michael is married to Lori and they have two daughters. To learn more about Michael, connect with him on LinkedIn.