When you first start investing, whether it’s general investing or for your retirement, it’s human nature to get a little excited. While the market and investing terminology can be a little intimidating to the new investor, the possibilities and opportunities that it introduces into your thoughts about personal finance far outweigh any of the anxiety you might feel. There can be a downside to that excitement however, and that’s when you over-analyze your portfolio and your decisions.
People love to follow the stock market on a daily basis. It’s like a game really, and to the new investor that gets first introduced to the market, it’s something that you think about all day. You want to see “how much you made” in the last week, day, or even hour. It’s a natural reaction to the excitement of something new, and that’s alright. You have to temper your excitement though, because if not handled properly it can lead you astray. The stock market can be very volatile, and for most investors, making impulsive decisions based on market peaks and valleys can lead you into financial ruin. Sure, if you’re a professional day-trader, then you need to watch the market and react all day long. But for the average investor that invests for retirement and maybe a little extra on the side, chances are you’ll only do yourself harm. If you jump at every market movement and try to guess yourself into a big win, you’ll probably just end up losing. Slow and steady can make just about anyone a successful investor, even without much knowledge of what stocks to invest in.
Sometimes we tend to make things harder for ourselves then they really have to be. When it comes to investing there’s a competitive edge that makes people search for that “hot tip” to put their money into and make a fortune. The truth is, if you follow a fairly basic strategy you have a great chance of being well off in the long run. The problem with this is that patience and discipline aren’t the sexiest things in the world. J.D. of Get Rich Slowly talks about this phenomenon in a similar article on index funds. The key to long-term success in investing are pretty basic; reduce the amount of money you pay in fees and properly diversify your holdings. If you are able to accomplish these two things, then you will do well for yourself.
Previously we discussed the advantage of index funds, and how they can help you reach your investing goals by reducing expense ratios and managing to follow the returns of indices over the long run. If you filled your portfolio with various allocations of different index funds that aim to duplicate some of the major indices and just left them alone over the long run, history says that you will end up with a really nice little nest egg. Obviously there are still decisions to be made, like what index funds to choose and how to allocate your choices based on your age and risk allowance, but even that is not always necessary nowadays. Target retirement funds allocate your holdings automatically based on how close it is to your target retirement date, so that it moves your money to safer investments the closer you get to retirement.
Investing is a necessity in building your wealth. Making smart decisions doesn’t mean you have to know it all when it comes to investing. Some of the most successful investors are those that out think themselves. If you make some key choices early on and put your money into low cost index funds over the long haul, you’ll probably find yourself in a better position than most of the “savvy” investors out there.
