13 Steps to Smart Investing

by James & Miel on August 11, 2009 · 0 comments

Hello All,

According to the Motley Fool, there are thirteen rules for successful investing.

1) Understand that investing isn’t hard.
– A lot of Wall Street advertising attempts to convince you that its difficult to get into stocks or bonds. With some basic education, its actually not difficult.

2) Settle your finances.
– No investment will yield a higher return than paying off high interest credit cards. Also, get your house in order by figuring your net worth and personal or household budgets. This will help you to determine what assets are best for you.

3) Set expectations.
– Get to know market averages like the S&P 500 or the Russel 2000 so you can tell how well your investments are doing. This matters. If your investments aren’t doing as well as the indices, you might consider selling them and buying the index.

4) Consider index funds. If you don’t want to buy individual stocks, have underperforming funds, or don’t really want to get involved in investing, consider buying an inexpensive index fund. Vanguard has some great products if you’re interested.

5) Consider dividend reinvestment (DRIPS) or direct investment plans. These plans permit you to invest small amounts of money regularly for low transaction costs.

6) Open a discount brokerage account.

7) Plan for retirement. Assess and maximize your current savings plans. Maximize your contributions to your 401ks, Roths401ks and Roth IRAs and learn about how these plans work. You want to build as much wealth up as possible for retirement, so don’t forget to max out on employeer matching contributions.

8) Gather information on companies you are considering investing in. Start files on these firms. There is lots of publicly available information on the internet and at the public library.

9) Learn to evaluate businesses. Read a basic accounting textbook. Learn to decipher financial statements, how numbers are crunched and what they mean.

10) Consider investing in “rule makers”. Rule makers are large successful companies that are defining business practices in their respective business environments – i.e. they literally “make the rules”. In the past, companies like CISCO systems and American Express have been thought to be “rule makers”.

11) Consider small capitalization stocks and companies with more aggressive growth strategies. These types of investments occasionally provide superior returns when their management of these firms creatively breaks conventional wisdom regarding business practices.

12) Spend some time learning advanced investing issues. Consider developing at least a passing familiarity with options, day trading, technical analysis, margin and shorting. You are probably better off steering clear of some of these or using others in moderation.

13) Explore. Register in forums. Talk to people, participate in online communities.

– From The Motley Fool Money Guide, by Selena Maranjian

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