Sound Ways to Invest Money
By Mark Landis
Flashing tickers, screaming heads, conflicting financial reports, and the financial media circus distract and confuse first-time investors, and keep them from achieving the results they need. We believe that the best way to invest is to follow a disciplined approach designed to help investors improve returns over the long-run. These four steps will help anyone invest their money wisely and may increase the probability of reaching their financial goals.
Understand Economics Beyond Markets
In markets, transactions between people create value. You give your time, brainpower and effort to your employer, and your employer gives you money. You can then use the money to buy goods and services and to invest. Each person gains something from the transaction.
Over time, new ideas and changes in technology allow people to increase their productivity, and an economic market can produce more goods and services and more valuable transactions. In the short-run, financial markets are volatile, and downward swings can strike fear into the hearts of investors. To succeed as an investor, fear cannot dictate your investing strategy. Remembering that financial markets represent economic markets will allow you to stay invested when your portfolio value falls. However, in the long-run, financial markets, like the stock, bond and commodities markets reflect the productivity gains in the economic markets. This is why investing in assets in the long-run produces higher returns than holding cash alone.
Invest, Don’t Bet
Assets like stocks, bonds, and commodities represent real economic value, and in the long-run investing in assets yields real returns. However, it is difficult to make a profit from short term fluctuations in prices. Attempting to “time” the market tends to lead to losing money.
We believe the best way to invest is to commit to a disciplined investment strategy. Buying and selling assets should be based on an investment strategy and not a hunch or a hot tip from a friend or media personality. Betting that a particular stock or asset will rise in value rarely leads to high returns. It is better to invest for the long-run than it is to bet on the markets.
A productive investment strategy cannot depend on a single stock to drive returns. To avoid losing money, and to earn returns in the long-run, a sound investment strategy requires holding a diverse investment portfolio. A diverse portfolio spreads risk among several asset classes including stocks, bonds, and commodities. Spreading risk among these asset classes allows investors to smooth out returns, and to keep from being over-invested in asset class bubbles (like the “Dotcom Bubble” of the early 2000s, or the “Housing Bubble” from 2008-2009).
Invest Early and Often
Having enough money to meet a financial goal depends on a sound investment strategy, but returns alone won’t allow investors to meet their biggest financial goals. We believe the best way to invest and grow wealth is to increase the amount of money you have invested and to increase the length of time the money remains invested. Investing early and often is at the center of the wealth building process.
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