Every investor has their own tips for how to win big through investing. Often, however, the best piece of advice is also the simplest. If you want to maximize your returns while minimizing your risk, it is time to tune out all the noise and focus on these top five investment tips from the experts.
Buy low, sell high
This is the most classic piece of investing advice out there, but one that far too many new investors still fail to follow. The best investments are ones that can be had at a bargain. One of the giants of investing, John Templeton, made his fortune by following just this advice. In 1939, he invested in 100 struggling companies whose shares had hit rock bottom. Over time, Templeton sold almost all of those investments at a healthy profit while losing money on just four of the original 100 companies.
Investing is all about playing the long game, which means not buying and selling based on emotions just because a stock has gone through some short-term fluctuations.
Likewise, if you have a stock that has lost a lot of its value recently, now is not the time to sell. Don’t fall into the trap of assuming that because a certain stock has been performing well recently that it will continue to do so.
Make a plan and stick to it
Which brings us to our next point: humans are irrational creatures and we don’t make decisions that are in our best interests. That’s why you should try to remove the emotion from your investing as much as possible and focus on the big picture. As David Bach, author of “The Automatic Millionaire,” says, automating how much you save and invest each month will help ensure you stick to your long-term goals without getting distracted by daily ups and downs in the market.
Set long-term goals, automatically set aside a portion of each pay check for your investment, and ignore the day-to-day performance of individual stocks.
Fees and costs
Paying attention to fees and costs isn’t as exciting as your fund’s ROI, but it is equally important. That’s because your return counts for little if it is being eaten up by fees. Instead of getting preoccupied with a fund’s previous ROI, look at its load fee, turnover, and expense ratio. The higher any of these are, the more money you are going to be wasting on fees. Warren Buffet himself recommends putting 90% of investments into a low-cost S&P 500 index fund to avoid those high fees.
Stop trying to beat the market
This is a bitter pill for many investors to follow, but it aligns nicely with the last point. It is also one of legendary investor Jack Bogle’s key pieces of advice. A fund that keeps trying to outperform the market is going to be a more actively traded fund, which means it will have a higher turnover and, therefore, higher fees.
Sure, it may technically be “beating” the market but when it comes to your pocketbook, you’d be much better off going with a fund that is content to coast along with the market. In the long run, you’ll actually be making more than investors who are throwing money away on fees.
Youth, they say, is wasted on the young. Perhaps, too, is compound interest. That’s because if you truly want to invest better, you have to start earlier. Having an investment portfolio to help you through retirement isn’t about being able to put away the most money, it is about being able to put away money early enough so that it has time to accrue interest.
As financial journalist Jack Otter points out, if somebody starts investing just $3,000 a year into a 401(k) with compound interest of 8 per cent at age 20 and then stops investing at age 30, that person would have $400,000 at retirement. That is more than somebody who invested the same amount at the same interest rate each year but started at 35 (and kept investing until they retired!).
If you want an investment portfolio that is going to grow, then there is no point worrying about its performance every day. Rather, outline your investment goals, focus on long-term growth with minimum risks and costs, and try not to get too distracted by normal, day-to-day market volatility.