One of the most important ideas at the heart of successful investing involves the idea that everything you do needs to begin with a plan.
What, exactly, do you hope to accomplish? Where do you see yourself in a year? Five years? Ten years? How much can you afford to invest today, versus how much you’ll be steadily ramping up over time? How much money can you afford to lose?
The answers to questions like these will help you put together a plan that makes sense for you, not for anyone else. As the old saying reminds us, “Rome wasn’t built in a day.” In this context, it means that you need to understand that you’re looking at a potentially long journey ahead of you and the only way to make sure you arrive at your intended destination is to put a plan in place today that you can stick to.
While that is a crucial best practice for new investors to follow in particular, it is ultimately just one of many. If you’re getting started in the world of investing and want to make sure that your journey gets off on the right foot, there are a number of important things to keep in mind.
It’s Not About Tips or Speculation
One common issue that a lot of new investors in particular often run into involves the “romantic” aspect of it all. That is to say, they see in television or movies how an “overnight success” can be had simply by running into the right person at the right time. You know a friend, who knows a friend, who heard from a guy about a great investment tip that is sure to be the “next big thing.”
Sometimes, these tips may legitimately pay off, often in small ways. But usually, they wind up doing a lot more harm than good.
The same is true of the idea of speculation. It’s not about looking for the “next big thing” that just hasn’t paid off quite yet. Don’t go looking for only those investments that offer incredibly high returns, spreading your money around a myriad of them in the hopes that one pays off enough to cover any other losses you sustain. Investing isn’t about finding the cure for cancer before anyone else, or about any other opportunity that sounds too good to be true.
It’s about investing.
Don’t speculate. Don’t chase tips. Invest with an eye towards the future and if you follow that straightforward best practice and put it at the heart of the majority of the decisions that you’re making, you truly cannot go wrong.
Understand How Much You’re Investing
One of the more straightforward aspects of investing that a lot of new investors in particular don’t think about until it’s too late involves how much money they should be putting into this new enterprise of theirs. Obviously, the total amount of money you can conceivably spend will vary depending on your financial situation.
But as a rule of thumb, most people start out trying to invest as a way to begin saving for retirement. If they happen to make more than that, terrific – if they can accomplish even just that simple, realistic goal, it’s all the better. As a result of that, you would want to invest roughly 10% to 15% of your income every single year.
Again, depending on your financial situation, that may sound like an unrealistic proposition in the short term. But as you build momentum, little by little, it does get easier.
Other people invest for more specific goals – like they’re saving up to buy a house, or they want to take the vacation that they’ve always dreamed of. In that case, you would adjust your investment expectations accordingly. You wouldn’t necessarily adjust your strategy, but you would still build a plan around whatever actionable goal you’re trying to accomplish.
Time is Money
Investing your money is the key to unlocking its potential and building wealth. Otherwise, with time you risk losing purchasing power as prices rise faster than inflation due to the depreciation of your savings – leaving future payments worth less in today’s terms.
Making the most of your finances requires understanding time’s role in wealth. The concept of “time equals money” is popular for a reason: it can help you compare different investment and financial opportunities, guiding your decisions rather than ruling them out entirely. Harnessing this insight gives savvy savers an edge when looking to secure their future prosperity.
If you want to see how your money can grow based on your time horizon, check out this suite of financial calculators.