Tuesday, November 14, 2006

Five rules for investing

Setting your goals is an important step when considering to start investing. You should have an investment plan which can help you develop a strategy that suits your goals and financial situations. But im gonna assume that you have already done that. So here I present to you five rule for investing:

  1. Diversify

  2. Keep costs down

  3. Pay attention to taxes

  4. Buy and hold for the long run

  5. Know yourself

1.)Keep in mind that all investments involve some risk. The best thing to do is to spread the risk around by investing in a mix of stocks, bonds, and cash investments and diversifying your investments within each of those asset classes. This way if some investments are not doing so well, the other investments may help even out the ups and downs of your overall portfolio.

2.)Dont let the costs fool you into thinking that higher costs and fees means you'll get more for your money. Normally, people think that you get what you paid for but when buying mutual funds, this is not the case. Overall , higher costs and fees will reduce your total performace.

3.)After the investment costs and inflation, taxes take the biggest bite out of your return. For your taxable accounts, consider investing in:

  • Municipal bonds or municipal bond funds, which are exempt from federal (and often state and local) income taxes.
  • Tax-managed mutual funds, which use special strategies in seeking to reduce taxes on investment returns.
  • Index funds, which tend to have lower turnover and so are less likely than actively managed funds to pass along taxable gains. (This may not always be the case for index funds that track a benchmark for a narrow market segment or industry sector.)

4.) Dont waste your time trying to figure out the picdict the martket. No one can predict the ups and downs of the market often enough to make market-timing a consistently winning strategy. Just be patient and hold your ground.

5.) Know what you are comfortable with. If you cant sleep at night because your over-worried at the fact that the value of your investments is bounding around, then you need to build a portfolio with a more conservative mix. This way may not reach you to your goals asfast, but as least you will be more comfortable and more rested along the way.

1 comment:

Henry said...

Happy 20th post bud.