5 Tips for Successful Investing

How difficult do you make investing? I think we all have a tendency to chase hot leads and follow the market day by day, but I don't think that's a recipe for success. Attempting to forecast short term changes in the market is futile.

Simplicity is the your key to investment success. The easier, the less complicated, the better. The simplicity effect can be combined with a solid investment plan to ensure long term success.

Via blackthorninvestments.com
Via blackthorninvestments.com

I'd like to share 5 tips with you today that will help you accumulate more wealth with less effort and less stress. Here are my 5 tips for successful investing!

1. Have a Plan

Remember the short term market forecasting statement above - it just doesn't work. Making a preset plan with a defined asset allocation, specific assets, and a determined rebalancing period will help prevent you from making bad decisions and chasing down ice cold leads. A plan is probably far more important than the specific assets you choose to hold.

2. Invest based on Your Risk Tolerance

If you can't stand losses, own more short term bonds. The worst possible mistake you can make is holding 100% equities and then selling out when the market tanks. You'll ensure financial ruin with that plan. The best asset allocation is one that should yield the highest return up to your maximum loss tolerance. You've got to figure out if you can sleep at night after losing 10%, 25%, or 50% of your portfolio.

3. Dollar Cost Average

Dollar cost averaging means buying your predetermined assets in set intervals, which is often monthly. In other words, contribute a portion of your paycheck each month to your investment account, which should automatically invest in the assets your determined in your plan. Coming full circle, aren't we?

This is another way to prevent yourself from trying to time the market or forecast upcoming market movements. You just set it up and let it work. When the market is down, your money will buy more shares of your chosen investment. When the market is up, you'll buy less. The average is actually in your favor over time.

4. Diversify with ETFs

ETFs are a wonderful investment vehicle. They allow you to own thousands of stocks, or even the whole stock market for a very small fee. They are extremely tax efficient because you get to choose when to buy and sell, which means you can control all capital gains.†Did I mention fees? ETFs have crazy low fees. Many charge less than 0.10%!

I like Vanguard's ETF choices, which are free to trade. I also like Motif Investing which allows you to buy up to 30 ETFs for a flat $10, or Optionshouse which offers $4 individual trades. There are pros and cons about each, but without a doubt, the cheapest option is Vanguard.

If you are still not ready to invest your own money, I've grown fond of the investment company Betterment. They invest in high quality passive ETFs from Vanguard, which is fantastic. They also handle all rebalancing in a tax efficient manor and even do tax loss harvesting for you. For all this and more, they charge roughly 0.15% in management fees. That's a bargain when compared to the 1% often charged by wealth management firms.

5. Avoid Popular Media

Stop listening to the guys on TV who are yelling about the bull market or the upcoming crash. Just stick to your predetermined plan and invest on a regular, set basis. If you begin chasing hot leads or hopping in the raging hot market, you'll lose long term.

I would also add that you should avoid trying to purchase individual stocks based on tips or gut feelings. Individual stocks bear much more risk than a diversified index investment, and they probably don't have a place in the intelligent investors portfolio. Of course, this is the direct opposite of what you'll hear on the TV. So don't listen.

Do you follow these 5 tips for successful investing?

Author Bio: I'm Jacob, one half of the Cash Cow Couple. My wife and I enjoy teaching others how to live an abundant life on a very modest salary. We are attempting to spend less than $12,000 in our first year of marriage because we enjoy a good challenge.

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17 thoughts on “5 Tips for Successful Investing

  1. Love number 5. I wasted so much time and money "trading" based on investing shows that it makes me nuts. I didn't really lose money investing based on the advice, but in hindsight I would have much preferred an index fund and using the time watching, researching and trading to spend with my family and otherwise make more productive use of my time.

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  2. There is still so much that I need to learn about investing. I find the subject kind of above my head. Be that as it may, I can't help but commend how your post read so easy to investment unfamiliar eyes like mine.

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  3. Great tips, especially the one about avoiding popular media! That can really mess with your head if you buy into all the folks on there that are intentionally trying to sensationalize everything. Just stay the course and avoid dramatic people 🙂

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  4. Blake @ BeanCounterByDay

    I'll agree with the others. Watching shows like Mad Money seems like a great way to get good "insider" advice, but the best way to invest in the stock market is buy-and-hold. Constant traders lose much more than they win!

    I'll also throw out Index Funds. They are a great investment vehicle which tend to help hedge against large fluctuations!

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  5. I think sometimes there is good information shared in popular media, the investing strategies can be WAY off course. Peter Schiff used to get laughed at on TV (seriously, there are tons of videos on Youtube of people just laughing at him) when he warned the housing market was inflated and that housing prices were positioned for a crash. Even conservative economists joined in the laughing!

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  8. I love investing. I haven't dived into ETFs yet, but I am a huge fan of Mutual Funds and I always diversify my portfolio. I am a balanced investor so I try to keep a 60 equity 40 income split in my retirement portfolio. I know that since I'm only 33 I have a long time to retire but I am just not comfortable taking any more risk. So far it's worked out will with a steady rate of return over the years and not too big of a hit during down times. Great post Daisy.

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  15. Good list, Daisy. I have to agree with every detail you said. For me, it's best to stick to a well- tested plan that worked for several decades. You'll be risking a lot on trial and error investment plans.

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