There are a few simple rules that, when followed, can make the morning-after
a lot easier to get through. The drinking ladder is definitely one
of them. And if I remember correctly, starting at the first rung, is
beer, followed
by wine, clear and then dark hard liquor. Don't forget, you can go up but
not down.
The same principle of following simple rules works when seeking financial success.
Although there's no quick way to achieve it, you can make yourself
a better investor and make the morning after a rough market day more
tenable.
Consider these.
- Know your objective. Before going on a long road trip somewhere new you'd
plan a route and get a map. Wouldn't you? Why wouldn't you do the same with
your investments?
Establish a goal. Maybe it's a yacht down in Florida, a view of the green, or
a college education for the little ones. Whatever it is, make sure you're focused
on what you want to achieve and know how much time you're willing to wait for
it. Frankly, without knowing where you want to be, you'll never know when you
get there.
- Make regular payments. You pay your credit card bills every month don't you?
Why? To pay down your balance. Well, treat your investments the same way, but
rather than paying down, what you're really doing is paying them up. Putting
a regular flow of assets to work for you lets all those market factors work through
your investments, and the sooner you begin, the longer your money has time to
grow.
For example, if you invested $200 monthly in an investment that earns 8% annually,
you'd have $36,025 in ten years and $281,710 in 30 years. Obviously, the more
you invest, the greater the potential. For instance, if you added another $100
each month to the same investment, you'd have $54,037 in ten years and $422,565
in 30 years.
- Diversify. You've heard it a million times; don't put all your eggs in one
basket.
By diversifying, you spread and reduce risk. The market is a big wheel - when
one investment is up, another is down. Those that rise in value will help offset
the losses of those that decline. And as the market moves up, the investments
will change—you want to be able to capture as many up swings as you can.
- Rebalance. It's exactly what it sounds like. In sailing, the wind blows
a ship all about and you adjust your tack to keep yourself in the right direction.
You do the same thing with your investments. After the market has been working
through your investments and parts go up and parts go down, you can find yourself
back in the situation where your eggs are in the same basket. By rebalancing
you are adjusting your course to keep on the tack to your objective. Without
this step, having an investment objective serves no purpose because 10 minutes
into the trip you're no longer heading in the right direction.
- Think long-term. Isn't the point of investing having more money in the future?
Tomorrow, although technically the future, doesn't qualify. Plan on not pulling
out early, even when the market's daily ups and downs start giving you that post
rollercoaster riding dizziness. You might end up selling a fundamentally sound
investment early when you're investing for a long-term financial goal. That mistake
is one of the most common made by investors and rather than thinking of a down-turn
as a negative, try considering it as an opportunity to buy at a discount. When
investing long-term, think long-term.
Keep the above lessons in mind when investing and celebrating your successes.
