There are 5 rules of investment success. And if you follow them you will absolutely make a great deal of money. The good news is you can implement them yourself. You don’t need to do a world-wide investment advisor search to find some guru. Let’s get down to business and let the wealth flow.
1. Create Cash
If you want to see investment results you have to first create capital. And you create capital by simply paying yourself first. That’s right. Before spending a dime, set up an automatic investment plan and you’ll see astounding results.
I read an article on FreeMoneyFinance a few days ago highlighting the secret of having over $1,000,000 in your retirement account. According to the article, less than 2% of the population has been able to save that much. In fact, the average 401k savings is just a bit over $60,000. That’s barely enough to provide for a year of retirement.
How do some people sock away a million? By maximizing monthly contributions over many years no matter what. Do this and the magic happens. This in effect is paying yourself first. I want you to do this in and out of your retirement accounts. Set up automatic investments and make it a priority.
2. Get Framed
The second rule of investment success is to have the proper time frame. Sure everyone wants to make an overnight killing but it just doesn’t work that way. If you have a long-term goal (like retirement) your best bet is to take advantage of long-term growth investments like equity ETFs and mutual funds.
Once you are clear on your long-term objectives don’t get excited about short-term results. If you do get wrapped up in short-term volatility you’re bound to make huge investment mistakes like getting too aggressive or conservative at exactly the wrong time.
Please don’t misunderstand me. I am not suggesting that you buy investments and then forget about them. There are a variety of investment strategies for long-term growth – not just buy and hold. But the reality is that no matter which strategy you use, there are going to be times when you are going to be disappointed. Expect that. Stick to your long-term goals and forget about short-term results.
3. Lose Your Wallet
In order to stick to the first two rules, you’re going to have to get your spending under control. And don’t underestimate how spending impacts your investments. When people overspend, they often try to make up for it with very aggressive investments. And there are other problems with overspending.
Obviously, if you overspend you may not have the ability to “pay yourself first”. In fact, spend enough, and you won’t ever be able to save.
4. Keep it Super Simple
It is important for you to get a proper education. But once you set your course on a given investment strategy, don’t keep looking for a better mousetrap unless you want to lose money on your investments. Again, there will be times when the strategy you use is absolutely gong to underperform.
During those times, you’ll be tempted to try something new. I know people who make a career out of investigating and tinkering with investment approaches. Don’t do it. Understand that every dog has its day and it makes absolutely no sense to hop around. The grass may seem greener…but it usually isn’t.
5. Become Anti-Social
This tip is akin to previous tips. If you have friends, they’ll be more than willing to offer “investment tips” on an ongoing basis. Don’t listen. Sure you might miss an Apple or Google. But you’ll more than make up for it by side stepping the investment landmines that are just waiting to blow up in your face.
As you can see, investment success is much more a function of your behavior than it is a result of one particular fund or stock you pick. Which investments you choose is important but your investing behavior is far more important. If you have the wrong financial behavior it will have a multiplier effect. If you get any of these rules wrong, the negative results will be visited on you time and time again.
What other rules would you add?