For many people who don’t deal with investments day to day, the topic of investing remains one of the great unknowns.1 Investing can feel overwhelming at the start, but understanding some basic concepts can help you conquer your fear of the unknown. In the spirit of keeping investing simple, here are four general “rules” for investing that can help you achieve long-term financial success.
1. Avoid making emotional decisions with money
The foundations for sound investing are often based in common sense. Positive and negative emotional triggers can impact how we make decisions, including financial moves. This is only natural - your money is more than just numbers in a spreadsheet, it may be needed to fund your retirement and your children’s education. But a sound strategy can help you avoid being swept up in the moment and making a rash decision.
Instead of hopping on a financial and emotional rollercoaster, take a pause and remember the mind-money connection. Check in with your emotions. Delay big purchases for at least 24 hours. Talk with other people, particularly a financial professional, about any big financial decisions. Through these steps, you’ll take the emotional charge out of your financial decisions while sticking to a disciplined investment strategy.
2. Don’t try to “time” the market
Perhaps you’ve heard the saying, “Buy low and sell high.” In an ideal world, every investment would follow these words. This phrase overlooks a crucial mindset in investing: you want to invest for the long term. The value of the stock market and other assets, like real estate, can go up and down, particularly in the short term. Sometimes people buy stock, for instance, and then the price drops. They panic and sell the stock. Unfortunately, once they leave the market, they lose the opportunity to regain their original investment, as well as the chance to earn in the event the stock increases over time.