If you want to make it big and be successful with your investing, then you got to adhere to some do’s & don’ts of investing!
- Don’t invest in something you do not understand yourself. Not because someone sold it to you.
- Don’t pay high fee for investment products unless you know why the product is worth it.
- Don’t assume that if someone is giving you financial advice has their incentives aligned with you doing well. Most of the people in finance make maximum money while not adding value. It’s not that they set out to purposefully do this, it’s just that the way they get compensated lacks alignment with your financial well-being.
- Don’t fall victim to behavioral marketing tactics.
- Don’t overly focus on the short-term, listen to financial news media, or let news about the market or the economy affect your long-term investing strategy.
- Do save as much as you can consistently from an early age. Compounding works best when you start early.
- Do have an emergency cash reserve to cover 3–9 months of expenses before you begin investing. It will help you not be a forced seller on your long-term investments when circumstances change unexpectedly.
- Do start with a low-cost, passive investing strategy as your default option. Only deviate if you know exactly why that makes sense for you.
- Do focus on the long-term.
As Benjamin Graham famously said, “In the short-term the markets are a voting machine, but in the long-term they are a weighing machine.”
What he meant is that securities can trade at any price in the short term based on people’s opinion, but in the long-term the markets are pretty good at properly valuing assets and cash flows.
- Do match your investments to when you will need the money. Investments in stocks should be ideally for time horizons of 5+ years, with a minimum of 3 years. If you mismatch the duration of your investments vs. when you will need the money, you run the risk of being a forced seller at a temporary market low.