3 Rules For Making Sensible Investment Decisions
To build wealth over time, you need to invest.
Before you invest, you need to make an honest assessment about the risks of investing, and the potential rewards. Here are three rules for making sensible investment decisions.
Be Willing to Change
Successful investing requires a willingness to change.
The reason that people don’t diet, don’t exercise, and don’t resolve bad personal relationships is that change is hard. As a result, we don’t really, truly change and grow unless we’re in real pain. When we’re at that point, the pain of change is less severe than that pain of not changing.
With discipline and time, people can accumulate far more wealth than they think is possible. But growing wealth requires change- which is precisely why most people don’t make the effort. The changes I’m suggesting involve an old friend:
Delayed gratification
Some decisions are relatively small:
- Dropping a subscription music service and just listening to the free version (Pandora, for example).
- Making coffee at home two days a week, which means that you stop by Starbucksless often.
- Buying afew more generic products when you go to the grocery store and Target. (I’m not going generic on salad dressing, however).
Since these are smaller decisions, the amount of gratification you’re delaying is small. You don’t mind listening the commercials on Pandora (I certainly don’t- I just turned down the sound), and the coffee at home isn’t bad.
Bigger decisions requires a larger sacrifice- more gratification is delayed.
OK- so what do you get out of all this delayed gratification?
You build wealth- which can give you peace of mind.
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Avoid Information Overload
Successful investors avoid information overload, and use the advice of professionals to help them invest.
Technology gives investors information on thousands of mutual funds, stocks, and bonds, and the amount of data be seem overwhelming.
It’s important that you stick to investments that you understand, and to avoid any new investment strategies until you understand the risks and rewards of each new strategy.
Looking at the past performance of a stock will give you a good idea of how it’s likely to perform in the future, but a lot of people don’t go back far enough.
Review investment performance over the long term, to assess how an investment performs in both up and down markets.
If you’re investing in stock options, for example, you can easily find data on historical option prices, and you can use that data to assess each investment’s risk over the long term.
If you’ve had a financial setback, this article can help.
Consider Your Sources
You might read something in the newspaper that says a company that you’ve invested money in is likely to hit hard times in the next month or two, so you decide that you’ll pull your investment out. But what if their information is bad and it never happens?
It’s important that, before you make any decisions about your investment, you consider the source. Is the source reliable, or is there a better source that you can look to for information? If you start making snap decisions based on bad information, that’s when your investments will fail.
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Use these tips to make informed investment decisions, and to grow your wealth over time.
Ken Boyd
Author: Cost Accounting for Dummies, Accounting All-In-One for Dummies, The CPA Exam for Dummies and 1,001 Accounting Questions for Dummies
(email) ken@stltest.net
(website and blog) https://www.accountingaccidentally.com/