We all want to build wealth, and investing is generally a good way to get there. When you park all of your money in a savings account, you limit its growth substantially, but when you invest it, you get a real opportunity to turn it into a much larger sum.
Most Americans, however, aren't confident in their ability to invest wisely, according to new data from GOBankingRates. When asked what they thought of themselves as investors, 22% of adults rated themselves as "very unsuccessful," while 11% said they're merely "unsuccessful." And 34% were ambivalent -- they felt they're neither successful nor unsuccessful. Talk about harsh reviews.
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If you're eager to become a better investor, you should know that there are steps you can take to increase your chances of success. Here are a few to begin with.
1. Don't look to time the market
Countless studies have shown that timing the market just doesn't work, even for the pros, so rather than attempt to get in at the right time and get out quickly, take a long-haul approach to investing. One strategy you might consider is dollar-cost averaging, where you're essentially committing to putting a specific sum of money into the market at preset, regular intervals. Or, just invest money when it comes your way (say, when you get your tax refund or annual bonus at work) and keep it in the market for 10 years or more. When you commit to investing for a lengthy period of time, you increase your chances of making money, no matter when you actually begin.
The wider a range of investments you have in your portfolio, the more protection you have against losses. That's why diversification is so important. Rather than invest heavily in a single segment of the market, divvy up your assets so you're putting some cash into, say, energy stocks, some into pharma, and some into retail. Another great way to diversify is to invest in index funds rather than stick to only individual stocks. Index funds work by tracking and mimicking the performance of existing indexes, like the S&P 500, so that when you buy shares of an index fund, you get access to a bundle of stocks, thereby limiting the impact in the event one or two individual stocks underperform.
3. Avoid being reactive
Many people who put their money into the stock market rush to pull it out the second their account values lose money. But that's a big mistake. If there's one thing you should know about the stock market, it's that dips are normal, and that the market has a solid history of recovering from there. So don't panic the next time you log into your account and see a lower number than you did the week before. Remember, you're not looking at actual losses until you sell anything, so if you leave your portfolio alone during a downturn and ride out the storm, you'll most likely come out ahead.
4. Do your research
You wouldn't buy a car without checking out its safety rating, would you? Similarly, you should make it a policy not to put money into an investment until you research it thoroughly. If you're new to the world of stock investing, you can check out our guide for beginners. It will tell you everything you need to know about choosing the right companies and funds for your portfolio. If the idea of heavy research doesn't sit well with you, that's another reason to load up on index funds. Though you'll still need to read up on their performance, they eliminate much of the legwork that comes with investigating stocks one by one.
You don't need to be a genius to be a successful investor; you just need to follow certain basic rules. Stick to these tips, and with any luck, you'll soon come to think more highly of yourself on the investing front.
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