Why don’t you invest? Or why do your friends not invest? Many millennials report mistrust of the market, lack of know-how, insufficient funds, and student debt as barriers that prevent them from investing. However, using our simple investment tips can help you to become a smart investor, no matter how impossible a task it might seem right now.
Check out our 5 ideas for becoming a smart investor below, and you can learn how investing can help you to become a financially-independent millennial.
1. Diversify your portfolio
Imagine you’re on your way to your significant other’s mother’s birthday party. You stop off at her favorite bakery to pick up a baker’s dozen of her favorite kind of cookie, only to discover that the bakery has not one, but three kinds of cookies for sale. You can’t remember whether your future in-law’s favorite was oatmeal raisin, white chocolate macadamia, or chocolate chip.
To minimize your risk of making the wrong choice and falling out of favor with the woman you’ll be spending the rest of your Thanksgiving dinners with, you get a few of each. Don’t put all your cookies in one basket, right? This same principal applies to being a smart investor.
Read also: 8 investment opportunities to boost your finances
Diversifying your portfolio with various asset classes and different types of stocks can help you lower your risk and improve your long-term returns.
2. Automatize
According to the American Psychological Association, willpower is a limited resource.
If you seek to eliminate the unnecessary think work in investing-such as setting aside funds to invest in the first place-you can set yourself up for success. Automatizing a monthly transfer of a portion of your paycheck on payday can help you trim spending and accumulate wealth even from an income that initially seemed insufficient for “luxuries” like saving and investing.
Become a smart investor by reducing the pain of investing in favor of supporting your long-term investment goals by automatizing some of your financial decisions.
3. Pay Yourself First
Smart investors make investing a priority and honor it using the Pay Yourself First principle. PYF refers to setting aside a part of your monthly income for a particular financial goal like investing before paying other things, including bills. The PYF rule transforms your investment goals from an end-of-the-month option into your top financial priority.
Some experts believe that this rule is the best way to accumulate money for savings and investment goals. Some even claim that if you develop this habit early on, it can “help you develop tremendous wealth” over the long-haul. Some recommend automatizing a monthly transfer of up to 10-20% of your monthly income and funneling it into your investment fund, emergency fund, or savings accounts.
Paying yourself first can make investing a priority, not a luxury.
4. Practice long-term thinking
Especially in today’s volatile market, it can be easy to sell your stocks when you see a gut-wrenching drop, thinking that you are avoiding a bigger loss down the line. But making emotional decisions when investing is a sure-fire way to lose and to distract yourself from long-term goals. Long-term thinking is key to becoming a smart investor for a number of reasons.
Long-term investing can have tax benefits, can be built up gradually over time, and is generally more stable. While investors may experience dips and peaks over the short term, generally long-term investment result in gains because long-term investments tend to yield greater returns despite short-term volatility.
Plus, a long-term orientation to investing lets you build on the power of compound interest and grow your investments over time.
Finally, an important financial goal is to provide for yourself and your loved ones later in-life. This long-term orientation in and of itself requires you to ignore short term fluctuations in the market in favor of long-term growth trends.
5. Invest regularly
Smart investors invest regularly and start young. If you build small, achievable investment goals into your monthly budget using the PYF principle, you will be using both the power of automation and compound interest to your advantage.
Plus, as you work an investment fund into your financial planning, you can figure out how you want to diversify your investments and practice other smart investment tips.
Investment often seems like a luxury reserved for the folks in the ivory tower. However, by being conscious of our tips, you can be on your way to becoming a smart investor in no time. Remember, investing is a key component of keeping your financial health in check throughout your life!
