6 Tips On Investing: Because The Sky is Always Falling Somewhere
There is always something scary happening somewhere in financial markets around the world. The sky is always falling somewhere and people always have something to say about it and let's not forget the panic and hysteria that follows.
"Don't invest in the stock market it's going to crash soon. Remember 2008? Look at Greece, look at China."
"Don't buy real estate it's going to depreciate, remember the housing bubble"
"Don't waste your money on small business it's going to fail. Look at so and so"
"Don't do this, don't do that"
With all the nay saying going on, you might as well go to the bank right now withdraw all your money, cash out all your investments and stuff it into your mattress and then put whatever doesn't fit into your pillowcase. Right? Wrong!
If you pay close attention, you'll notice that despite all of these tragedies in the world of money, some people are still able to build wealth and have successful businesses regardless of the market or economic conditions.
The world of money, like everything else in life has its ups and its downs. Don't let fear keep your money stagnant when it could be working hard for you. If you are able to invest and save for the long term, you'll more than likely weather many storms and come out just fine.
Key things to know when investing regardless of when you do it:
1. Focus on the economy of you
Before you worry about what's happening in the world, you need to worry about what's happening in your personal and family financial situation. This is how you should always make your financial decisions.
- Do you have an emergency fund in place?
- Do you have debt you need to pay off?
- What are your personal financial goals?
- What are your long term investment objectives?
- What is your risk tolerance?
These are all things you need to consider when it comes to your investing decisions.
2. Educate yourself
Do not, under any circumstance, invest your money in any stocks or funds or business idea that you do not understand. Do your research, learn as much as you can and understand where you are putting your money before you make any investing decisions. The more you know, the less you fear.
3. Pay debt, save for a rainy day
Pay off any re-occurring debt you might have and build up your emergency fund before you invest in anything. Why? Because the interest rates on debt can sometimes be much higher than any returns you would make investing. Also because investing should always be for the long term, you want to make sure you have a solid emergency fund in place in the event of unplanned life occurrences this way you don't have to tap into investments when those life events comes up.
4. Plan for the short term
Put any money you need in the short term (less than 5 years) in more stable investment vehicles like certificates of deposits and savings accounts. This money should not be in the stock market right. Also create a plan to recession proof your finances.
5. Diversify your portfolio
It's important to have a well diversified investment portfolio to spread out the potential risk of investing and to hedge your portfolio as best as possible from severe losses and that means your investments should not all be tied up in one stock or in one real estate property. You want to make sure your investments are spread across multiple industries and areas so that if one industry or area experiences a decline, it doesn't completely sink your entire portfolio. When it comes to diversification of your portfolio in the stock market, I'm a huge fan of index funds and you can learn why HERE.
6. Focus on long term investing to build lasting wealth; Don't try to time the market
Think 10 to 15 years or more. Remember, Rome was not built in a day and Warren Buffet did not become a billionaire overnight. Market corrections happen. The DOW will decline. Timing the market is a fool's errand. When you give your money time to work for you in the stock market, it can take advantage of the power of compounding and take advantage of the average rate of the return of the stock market over the long term has been ~ 8% irregardless of the market dips....but the key here is "long term".
But what do you do when the stock market falls or rises?
Stay consistent with your investments and remember your investment objectives (your investment goals). When investing for the long term, look at things this way; During a market decline, the market is on sale, do your research and invest more in areas where you see good opportunity. If the market rises, purchase more conservatively but don't stop investing.
What if there is another housing bubble?
You need to think of why you are buying real estate in the first place. Make sure it makes sense. Is it a personal or investment purchase? If you are purchasing for personal reasons determine how long you plan to stay put in the area - renting for the short term might be better if you intend to move soon. If you are purchasing investment property, you want to make sure your rent payments exceed your mortgage and monthly operating expenses so you can be profitable. Learn more here.
When the sky falls where ever you are, don't panic, remain calm and remember, your plan is for the long term. Whatever is happening in the short term shouldn't really bother you because you will have a short term plan - you are paying off debt, building a fully funded emergency account and your other short terms assets will be in safe investments. Long term, your money will continue to work for you and it will weather the short term storms.
Bola Sokunbi is the founder of Clever Girl Finance and she's passionate about helping women take control of their money so they can live life on their own terms.