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Eight Investing Rules You Need To Follow To Make You Rich

Eight Investing Rules You Need To Follow To Make You Rich

Investing is like training for a marathon. Both require discipline, focus, determination, balancing risk and safety, and long-term vision. These investing rules have been tested and proven effective by generations of investors. Many people from every kind of background have followed these investing rules to wealth … which means that you can, too.

1. Start early and invest regularly

Start early

Warren Buffet once said, “If, when making a stock investment, you’re not considering holding it at least ten years, don’t waste more than ten minutes considering it.” Think of investing as training for a marathon. If you’re a couch potato, you can’t start running the week before the race and expect to win. Not only will it take a while to get in shape; you’ll need to be able to weather some injuries, illnesses, and other setbacks before race day.

Keep in mind that the longer you invest, the more you take advantage of compounding interest, and the more money you make long term. If you like numbers, just for fun, pull out a spreadsheet or calculator and start tinkering with the Rule of 72, which states that if you divide 72 by the annual rate of return, you get the number of years it will take for your investment to double in value.

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Invest regularly

If you want to run a marathon, you can’t just go out there and run a few miles once in a while and expect to see much improvement. Regular training, and regular investing, is key. If you try to do all of your marathon training at once, you’re almost guaranteed to injure yourself, and the same thing can happen if you dump a whole lot of money into one bad investment.

One nice aside about this investing rule is that you can take advantage of some nifty tax breaks every year by showing the IRS that you’re making regular contributions to an IRA or other retirement fund.

2. Choose your asset allocation — your marathon training program

Asset allocation” is the process of deciding what kinds of investments you want to make. Different investments behave differently and yield different amounts of money in the short- and long-term, and — just like marathon training — there is no one-size-fits-all investment strategy for everybody. Finding a balance between risks and rewards is a moving target that depends on a lot of variables.

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There are three traditional asset classes: equities (stocks), fixed-income (bonds), and cash and equivalents (savings accounts, certificates of deposit, money market funds). Stocks have historically yielded the highest returns for the greatest risk of the three asset classes. They’re the sprints of the marathon training world: they’re going to increase your strength and stamina the most, but will also put you at the highest risk of injury. Bonds are the middle-ground investments. They’re like tempo and other lower-intensity interval training; lower risk of injury, but also more modest benefits. Cash and cash equivalents are your steady-state running sessions and endurance miles. You’re not too likely to hurt yourself — or lose money — but they’re also going to yield the smallest returns for your effort.

3. Rebalance yearly

Rebalancing is the practice of periodically evaluating your portfolio — your “training program” — and making any tweaks to the balance between high- and low-risk investments. You could rebalance more often, but the consensus seems to say that a year gives you long enough to see how everything is doing over a longer period of time. Plus, it gives you a regular date to write in your calendar. ‘Nuff said.

4. Keep costs down

“The goal of the nonprofessional should not be to pick winners … the ‘know-nothing’ investor who both diversifies and keeps his costs minimal is virtually certain to get satisfactory results.” — Warren Buffett

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This is actually a pretty simple concept. The less you’re paying in “overhead” — fees, taxes, or heavy shoes — the more of your money (or energy) you get to keep and reinvest. Also, lower-cost investments tend to perform better than their higher-cost brothers and sisters. You don’t see too many marathoners wearing combat boots. Which brings me to the next point:

5. Make index funds the core of your portfolio

Index funds are a type of mutual fund that is built to mimic the performance of a market index such as the S&P 500. One of the features of an index fund is — you guessed it — low cost. In addition, index funds are intrinsically diverse. They include a range of high-risk and low-risk investments, all put together by professional folks who know what they’re doing and have already done all of the hard work and research for you. That’s pretty hard to beat.

6. Focus on your goal, which is to make money

Remember, this is not casual running; you’re training for a marathon. You’re not just playing with your money; you’re moving toward riches. As tempting as it might be to invest in the latest bright-and-shiny, new moneymaking concept, or to tinker with new and cool marathon training theories, if you’re just starting out, you’re better off following the investment rules set down by the generations of investors and experts who have already made the mistakes, done the research, and come up with strategies that work. After you have a nice cushion of money or a few marathons under your belt, it’s probably fine to do a little experimenting, but until then, keep it safe.

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7. Don’t try to outperform the market

This is one of my favorite investing rules. If you’re running or investing at all, you’re already ahead of 99% of the population, so relax and don’t try to outfox the market. You can’t run any faster than you can … and you can’t force your investments to perform any better than they can.

8. Don’t spend your principal

This is probably the most obvious of all of the investing rules, but once you’ve invested your money, keep your hands off of it. Spending your investment is like skipping training. You aren’t going to get ready for that marathon if you don’t run, and your money isn’t going to gather interest if you spend it on anything besides your investments.

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Last Updated on January 21, 2020

How to Develop a Millionaire Mindset in 6 Simple Steps

How to Develop a Millionaire Mindset in 6 Simple Steps

We all like to dream about being financially wealthy. For most people though, it remains a dream and nothing more. Why is that?

It’s because most people don’t set their mind to achieving that goal. They might not be happy in their current situation but they’re comfortable – and comfort is one of the biggest enemies of growth.

How do you go about developing that millionaire mindset? By following these simple steps:

1. Focus On What You Want – And Take It!

So many people are too timid to admit they want something and go for it. When there is something that you want to accomplish don’t think “I could never actually do that”, think “I could do that and I WILL do that”.

Millionaires play to win, not to avoid defeat.

This doesn’t mean to have to become a selfish jerk. What it means is becoming more assertive and honest with yourself. You don’t have to grab off other people. There is a big pot of unclaimed gold in the middle of the table — why shouldn’t you be the one to claim it? You deserve it!

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2. Become Goal-Orientated

It’s almost impossible to achieve anything if you don’t set firm goals. Only lottery winners become millionaires overnight. By setting yourself attainable goals, you will get there eventually. Don’t try to get rich quickly — get rich slowly.

Let’s take the idea of making your first million dollars and expand on what kind of goals you might set to get there. Let’s also say you’re starting at a break-even position – you’re making enough to get by with a few luxuries, but nothing more.

Your goal for the first year can be having $10,000 in the bank within a year. It won’t be easy but it is doable. Next, you need to figure out the steps you need to take to achieve that goal.

Always look at ways to make growth before cutbacks. With that in mind, you might want to see if you can negotiate a pay rise with your boss, or if there’s another job out there that will pay better. You might be comfortable in your old job but remember, comfort stunts growth.

You may also have other skills outside of your workplace that you can monetize to boost your bank balance. Maybe you can design websites for people, at a fee of course, or make alterations to clothes.

If this is still not enough to make the money you need to save $10,000 in a year, then it’s time to look at cutbacks. Do you have a bunch of old junk that someone else might love? Sell it! Do you really need to spend $10 on your lunch everyday when you could make your own for a fraction of the cost?

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If you are to become a millionaire, you need to start accumulating money.

Here’re some tips to help you: How to Become Goal Oriented and Achieve More in Life

3. Don’t Spend Your Money – Invest It

The reason you need to accumulate money is for step three. Millionaires tend to be frugal people, and that’s because they know the true value of money is in investing. Being your own boss goes hand-in-hand with becoming a millionaire. You’ll want to quit your regular job at some point.

Stop working for your money and make your money work for you.

Rather than buying yourself a new iPad, that $500 could be used to invest in the stock market. Find the right shares (more on that later), and that money could easily double within a year.

There’s not just the stock market — there’s also property, and your own education.

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4. Never Stop Learning

The best thing you can invest in is yourself.

Once most people leave the education system, they think their learning days are over. Well theirs might be, but yours shouldn’t be. Successful people continually learn and adapt.

Billionaire Warren Buffet estimates that he read at least 100 books on investing before he turned twenty. Most people never read another book after they’ve left school. Who would you rather be?

Learn everything you can about how economics works, how the stocks markets work, how they trend.

Learn new skills. If you have an interest in it, learn everything you can about it. You’d be surprised at how often, seemingly useless skills, can become extremely useful in the right situation.

Start developing the habit of learning continuously: How to Create a Habit of Continuous Learning for a Better You

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5. Think Big

While I advise to start off with small goals, you absolutely should have a big goal in mind. If you have a business idea, then that is your ultimate goal – to start that business and make a success of it. If you want to invest your way to millions of dollars and do little work other than research, then that is your big goal.

There is no shame in not achieving a big goal. If you run a business and aim to make $1 million profit in a year and “only” make $200,000, then you’re still significantly ahead of most people.

Aim for the stars, if you fail you’ll still be over the moon.

6. Enjoy the Attention

To be successful, you have to be willing to promote yourself and enjoy the attention to a certain extent. Now the attention doesn’t need to be on yourself, it could be on your brand, but attention definitely attracts money.

Never be embarrassed to get your name out there. That means finding a spotlight and being brave enough to step right up underneath it.

If you run a business, try contacting the local papers. You’d be surprised at how amenable they often are to running a story about you and your business, and it’s all free publicity.

Above all, remember: You control your own destiny. Push hard enough for anything and you’ll get it.

More About Thinking Smart

Featured photo credit: Austin Distel via unsplash.com

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