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How To Invest Money? 9 Tips For Dummies!

Investments can bring you magical results.

In fact, if you invest merely $650 per month, you can accumulate around $1 million in 30 years.

If you wish to learn the right ways of investing, then you are on the correct blog post!

Before we go to the tips itself, I’d highly recommend you to check out my previous blog post – ‘How to invest money? Simple strategies for Beginners’  in order to familiarise yourself with the subject.

Now let’s move on to the tips.


What Are The 9 Investment Tips For Dummies!?

Tip #1: Inflation Can Reduce Your Purchasing Power Drastically.

For a long time, inflation is the US has averaged around 3%. Although it might seem little at first sight, it accumulates to a huge amount over time.

For instance, if you currently have $100,000; in 20 years, the purchasing power of the same will decrease to about $54,000.

What’s the takeaway?
It is highly advisable to save money and in turn invest it.

Just saving money is a BAD strategy.

Tip #2: Don't Count On Your Home As An Investment. 

A lot of people are under the impression that real estate prices always go up. Therefore, counting on your home as an investment might seem natural to all.

However, Nobel-prize-winning economist Robert Shiller (famous for his studies of the housing market) suggested that housing prices have grown at a compound annual rate of just 0.3% over the past century (inflation-adjusted). During the same time, the S&P 500 has averaged roughly 6.5%.

Therefore, considering your home as an investment is actually BASELESS.


Tip #3: It’s 3 Times Easier To Start Investing NOW Than Later.

The Boston College report shows that if you are 25 years old, it is enough for you to put aside just 15% of your income to ensure a comfortable retirement.

However, if you start at the age of 45 years, you’ll have to put aside 44% of your income to hit the ‘safe target.’

Therefore, it is 3 times easier to invest when you start younger!

However, a study showed that 39% of those under 30 keep funds they don’t need for at least ten years invested in plain cash.

By doing so, not only are they losing money because of inflation, but they are also losing the power of multiplying their capital through wise investments.

Make sure you are not contributing to this statistic.

Use the most significant factor of investment – ‘TIME’ – to your advantage.

Even if it’s a small amount of money, it is better to start investing RIGHT NOW!


Tip #4: Do Not Hope That Your ‘Retirement Plan’ Will Save You. 

A report from the Boston College showed that the average retirement account balance for those nearing retirement is roughly $111,000.

This results in just under $400 in passive monthly income during retirement. This is certainly NOT enough!

Therefore, even though retirement plan is a good thing, you can’t rely on it solely.

Take a few extra steps to ensure a good financial future.


Tip #5: Get Out Of Debt.

Of course, this advice is easier said than done. However, it is still important to pay close attention to it.

Debt trends in the UK over the last 5 years:

  1. Student debt has doubled. It is now close to £100.5 billion.
  2. Consumer credit has increased by 19%. 
  3. Around 9% of Britons believe that they will never be debt free.

The general trend shows that the ‘debt situation’ is getting worse.

Therefore, you must take cautious steps to not fall into the vicious cycle of the debt trap.

How do you do this?
That is a separate discussion altogether. However, you can take a few intuitive steps to ensure that you aren’t falling under the debt burden.


Tip #6: Invest In Indexed ETF’s.

In general, your strategy should be to invest 10% - 30% of your monthly income in mutual funds.

Amongst the mutual funds, one of the simplest and most profitable ones is the ‘Indexed Electronic Traded Funds.’

For example, of all the mutual funds benchmarked to the S&P 500, 72% underperformed (compared to the indexed) over a 20-year period ending in 2010.

Therefore, the ‘Indexed Electronic Traded Funds’ is the easiest and perhaps the most profitable option for you – especially beneficial if you are a beginner investor.


Tip #7: Avoid Active Trading.

Investment in ‘Indexed’ funds almost guarantees that you grow your capital slowly but steadily.

At the same time, there are people who wish to do active trading in order to grow their capital quickly.

However, it is highly risky.

All economists agree that predicting stock prices is extremely tough. Yet, only 59% of Americans agree with that statement.

In August 2000, Fortune magazine published “10 Stocks to Last the Decade.” By December 2012, the portfolio in question lost 74.3% of its value.

Those who try to ‘outperform’ the market, usually end up losing.

DO NOT be amongst them!


Tip #8: Fees Of 0.75% Equates To A 30% Smaller Nest Egg In 20 Years.

Be aware of the commission charges. Strive to reduce them as much as possible.

While the average actively managed mutual fund charges were 0.70%, the average ETF charges were only 0.43% (and sometimes below 0.10%).

This is just another reason for you to pick ETFs as your investment options.

Another way to reduce your commission charges is by avoiding a financial advisor.

Nowadays, when you start investing through an online platform, you are usually offered an ‘advisor’ who will analyze your risk profile and suggest the ‘ideal’ investment options for you.

However, these ‘Ideal’ portfolio investment options, is usually suitable for a large majority of the population and not just yourself.


Tip #9: Invest Long-Term. It Saves You From Volatility And Reduces Taxes. 

Between 1928 and 2013, a broad index of U.S. stocks increased 2,000-folds! However, it actually lost at least 20% of their value at least 20 times, during this period.

In other words, your investments might fluctuate up and down in the short-term. However, in the long run, they will Always Grow.

Chart of the S&P 500 (1960-2016)

Therefore, it is advisable for you to invest your money for at least 3 years (if not 5 years or more). This way, you will surely get your deserved yields.

Another advantage of long-term investments is Reduced Taxes.

Short-term investment gain is usually heavily taxed. Whereas, long-term investments often carry nominal (sometimes even zero) tax rates.



Here are 9 investment tips for dummies:

  1. Inflation can reduce your purchasing power drastically.
  2. Don't count on your home as an investment.
  3. It’s 3 times easier to start investing NOW than later.
  4. Do not hope that your “retirement plan” will save you.
  5. Get out of debt.
  6. Invest in indexed ETF’s.
  7. Avoid active trading.
  8. Fees of 0.75% equate to a 30% smaller nest egg in 20 years.
  9. Invest long-term. It saves you from volatility and reduces taxes.
Igor Smirnov

Igor Smirnov

Psychologist, blogger, chess Grandmaster, Internet entrepreneur. Follow Igor on Facebook

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