Investing Basics: 14 Simple Strategies for Building Long-Term Wealth | NewRetirement (2024)

Investing can be made simpler by following a few strategies that focus on ease, efficiency, and long-term success. And, guess what, keeping it simple often results in better financial results than trying to pick the right stock, actively trading, and trying buy and sell at the the highs and lows.

Investing Basics: 14 Simple Strategies for Building Long-Term Wealth | NewRetirement (1)

You really don’t need to be a finance whiz and spend all your time plotting returns in a spreadsheet.

In fact, the simpler you keep things and the less you think about your investments, the better. Here are 14 ideas for keeping investing easy and straightforward:

1. Understand Time Horizons: When Will You Need the Money You Invest?

Knowing when you’ll need to tap into your savings is critical to knowing how to invest.

  • Your emergency savings or money that you absolutely need access to cover expenses in the next 1-5 years should be kept in very low risk investments or something with guaranteed returns. You do this so that you don’t need to risk having to sell your investments at a loss when or if you need access to the money.
  • Money that you are saving for the future, can be invested with more risk, in the stock market for example. Yes, the investment may lose money in the short term, but because you have a long time before you need the money, it is likely to rebound before you need to make any withdrawals.

2. For Long Term Savings, Keep Your Eye on the Distant Horizon

The stock market is going to go up and down. And then, up and down again and again. But, guess what? Over the long haul it has only ever historically trended upward. When you invest for retirement, you want to

in the long run, the market tends to move towards a more rational assessment of value, where the true worth of investments is weighed and recognized.

“History provides a crucial insight regarding market crises: they are inevitable, painful and ultimately surmountable.Shelby M.C. Davis

“A 10% decline in the market is fairly common—it happens about once a year. Investors who realize this are less likely to sell in a panic, and more likely to remain invested, benefitting from the wealthbuilding power of stocks.” Christopher Davis

3. Consider Index Fund Investing

Forget about trying to pick just the right stock.

For long term investing, consider low-cost index funds, which track a specific market index, such as the S&P 500. Instead of buying a single stock, you buy a very small percentage of ALL of the stocks in the index. This spreads your risk and enables you to participate in the success of a huge number of companies.

These funds provide broad market exposure and tend to have lower fees compared to actively managed funds. Index fund investing allows you to passively participate in the overall market performance without the need for extensive research or active trading.

As John Bogle, the founder of Vanguard said, “Don’t look for the needle in the haystack. Just buy the haystack!” An index is the haystack.

4. Adopt a Dollar-Cost Averaging Approach

Everyone believes that it is a great idea to “buy low and sell high.” The reality is that it is almost impossible to actually do that consistently without having a very accurate crystal ball.

When growing your money, it is usually a better idea to just invest consistently, on a schedule.

Implement a systematic investment approach by regularly investing a fixed amount of money at predetermined intervals, regardless of market conditions. This strategy, known as dollar-cost averaging, helps mitigate the impact of short-term market volatility.

Buying investments consistently over time, you buy more shares when prices are lower and fewer shares when prices are higher, effectively reducing the average cost per share.

“The function of economic forecasting is to make astrology look respectable.” – John Kenneth Galbraith

“Though tempting, trying to time the market is a loser’s game. $10,000 continuously invested in the market over the past 20 years grew to more than $48,000. If you missed just the best 30 days, your investment was reduced to $9,900.” – Christopher Davis

5. Keep Investing Boring

Too many people approach investing like gambling. They want to take chances and try to find stocks that are about to sky rocket. Taking risk is perfectly okay so long as you only do so with money that you are one hundred percent okay losing and that you don’t need to achieve your long term goals.

Gambling is okay with money you are willing to lose. Money that you want to grow should not be invested in a way that triggers excitement or angst.

“Investing should be more like watching paint dry or watching grass grow. If you want excitement, take $800 and go to Las Vegas.” — Paul Samuelson

6. Automate Your Savings and Investments

Saving and investing takes discipline, especially if you have to set aside time every two weeks to divert money from your paycheck into an investment. Manually saving and investing gives you the opportunity to skip the task sometimes when the allure of spending that money is too great.

Automating your saving and investing is a much better strategy that insures you are paying yourself first.

Take advantage of automation features offered by brokerage platforms or retirement accounts. Set up automatic contributions that transfer funds from your bank account to your investment account on a regular basis. This helps enforce discipline and consistency in your investment strategy, removing the need for manual transactions.

7. Set it and Forget it

Investing is perhaps the one endeavor where extra effort does not necessarily correlate with success. In fact, the less you do with regards to investing, the better off you might be. Effort – spending a lot of time selecting and worrying about investments – does not necessarily equal success.

It is better to adopt a long-term perspective and resist the temptation to frequently check or tinker with your investments.

Once you have established your investment strategy to meet your goals and risk tolerance, avoid making impulsive decisions based on short-term market fluctuations. Regularly review your portfolio and rebalance if necessary, but avoid making frequent changes in response to market noise.

“The best way to measure your investing success is not by whether you’re beating the market but by whether you’ve put in place a financial plan and a behavioral discipline that are likely to get you where you want to go.” – Benjamin Graham

8. Keep Costs Low

Minimize investment costs by opting for low-cost investment vehicles, such as index funds or exchange-traded funds (ETFs). High fees can eat into your returns over time, so be mindful of expense ratios and transaction fees. Additionally, avoid unnecessary trading and excessive portfolio turnover, as each transaction typically incurs costs.

9. Consider Target Date Funds

As you approach retirement, a low-cost target date fund may be a good investment to consider. Target date funds automatically allocate assets based on your target retirement date.

Here’s how a target date fund typically works:

  1. Broad Asset Allocation: The fund initially invests in a mix of asset classes such as stocks, bonds, and cash equivalents. The allocation is typically more heavily weighted towards stocks in the early years when investors have a longer time horizon and can tolerate higher volatility.
  2. Gradual Shift to Conservative Allocation: As the target date approaches, the fund gradually reduces its allocation to stocks and increases its allocation to more conservative investments like bonds and cash. The objective is to reduce the portfolio’s risk exposure as investors approach retirement to preserve capital and provide more stable returns.
  3. Automatic Rebalancing: The fund automatically rebalances its asset allocation periodically to maintain the desired mix. Rebalancing ensures that the portfolio aligns with the target allocation, especially during periods of market fluctuations that may cause the asset mix to deviate.

10. Educate Yourself

While investing can be a relatively simple endeavor, it’s a good idea to boost your financial knowledge base. Commit to learning about personal finance by subscribing to a newsletter or regularly reading books on investing.

11. Get Professional Help

A lot of people only feel comfortable making investment decisions with the guidance of a financial advisor. This can be expensive and/or worthwhile, it all depends. If you are interested in investment advice, it is important that you understand how the advisor is compensated.

There are basically two ways of paying for financial advice:

AUM: Most investment advisors are paid a fee based on a percentage of the assets they manage for you. This type of compensation is called Assets Under Management (AUM). The AUM fee will typically range between .5% to 2% and the advisor will usually manage all buying, selling, and rebalancing. People like AUM advice because it puts the responsibility of investing on someone else, but the fees can really add up. If you have $200,000 in savings and are paying 1% in AUM, you are out $2,000 a year.

Fee-Only: If you use an advisor who is compensated under a fee-only structure, you will pay an agreed upon flat fee and be given an investment strategy that you can implement on your own. The advisor will help you know how much to invest in which kinds of vehicles, but you make the trades yourself.

Want fee-only advice? Collaborate with a CERTIFIED FINANCIAL PLANNER™ professional from NewRetirement Advisors to identify and achieve your goals. Book a FREE discovery session.

12. Don’t Panic

Human beings are not hard wired to make good investment decisions. Our natural emotions, especially fear and greed, can trigger really bad decision making when it comes to money. When the stock market crashes, you may feel panic and fear, but the right reaction is to stay the course. Given enough time, the market will almost certainly recover.

People who sell in a downturn are likely to lose the gains they made.

“You get recessions, you have stock market declines. If you don’t understand that’s going to happen, then you’re not ready, you won’t do well in the markets.” — Peter Lynch

13. Know How Much You Need to Save

There are multiple ways to determine how much you need to save or have saved for a secure retirement. Knowing this number can help motivate you.

14. Start Investing as Early as Possible

The earlier you start investing, the most wealth you can create. Someone who starts investing when they are young will end up with a significantly higher retirement savings balance than someone who starts later in life. The investments simply have more time to grow.

However, it is never too late. It is entirely possible to amass sufficient savings for retirement no matter how old you are when you start. Substantial savings contributions and the right investment strategy can still lead to significant retirement savings by retirement age.

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Investing Basics: 14 Simple Strategies for Building Long-Term Wealth | NewRetirement (2024)

FAQs

Investing Basics: 14 Simple Strategies for Building Long-Term Wealth | NewRetirement? ›

What should you invest in inside your 401(k) and Roth IRA? There are many different types of investments to choose from, but Ramsey says mutual funds are the way to go! Mutual funds let you invest in a lot of companies at once, from the largest and most stable to the newest and fastest growing.

What does Dave Ramsey say to invest in? ›

What should you invest in inside your 401(k) and Roth IRA? There are many different types of investments to choose from, but Ramsey says mutual funds are the way to go! Mutual funds let you invest in a lot of companies at once, from the largest and most stable to the newest and fastest growing.

What are the 3 keys to long term wealth building? ›

Key Takeaways

Building wealth over time requires an understanding of how to invest wisely, safeguard assets, and manage debt.

What funds does Dave Ramsey invest in? ›

I put my personal 401(k) and a lot of my mutual fund investing in four types of mutual funds: growth, growth and income, aggressive growth, and international. I personally spread mine in 25% of those four. And I look for mutual funds that have long track records that have outperformed the S&P.

How to build wealth with $5,000? ›

7 Best Ways To Invest $5,000 Depending on Your Money Goals
  1. Create an Emergency Fund If You're New to Saving. ...
  2. Invest in Yourself To Increase Your Income. ...
  3. Leave Your Funds in a High-Yield Savings Account If You're Just Starting. ...
  4. Fund Your Retirement Accounts If You're Concerned About the Future.
Nov 16, 2023

What are the 4 funds Dave Ramsey recommends? ›

I put my personal 401(k) and a lot of my mutual fund investing in four types of mutual funds: growth, growth and income, aggressive growth, and international.

What is the number 1 rule investing? ›

Warren Buffett once said, “The first rule of an investment is don't lose [money]. And the second rule of an investment is don't forget the first rule.

What is the number 1 key to building wealth? ›

Saving, investing, reinvesting, and growing your financial and business intelligence are all essential wealth building habits that require persistent and consistent effort. In other words, wealth building requires discipline. Without discipline, you risk falling prey to the number one wealth killer: procrastination.

What is the 72 rule in wealth management? ›

The Rule of 72 is a calculation that estimates the number of years it takes to double your money at a specified rate of return. If, for example, your account earns 4 percent, divide 72 by 4 to get the number of years it will take for your money to double. In this case, 18 years.

Do 90% of millionaires make over $100,000 a year? ›

Choose the right career

And one crucial detail to note: Millionaire status doesn't equal a sky-high salary. “Only 31% averaged $100,000 a year over the course of their career,” the study found, “and one-third never made six figures in any single working year of their career.”

What is the 7 year rule for investing? ›

Let's say your initial investment is $100,000—meaning that's how much money you are able to invest right now—and your goal is to grow your portfolio to $1 million. Assuming long-term market returns stay more or less the same, the Rule of 72 tells us that you should be able to double your money every 7.2 years.

Why does Dave Ramsey say not to invest in ETFs? ›

Constantly Trading

One of the biggest reasons Ramsey cautions investors about ETFs is that they are so easy to move in and out of. Unlike traditional mutual funds, which can only be bought or sold once per day, you can buy or sell an ETF on the open market just like an individual stock at any time the market is open.

What is better, VOO or SPY? ›

VOO earns a top rating of Gold, while SPY earns the next best rating of Silver. Almahasneh says the reason is fees. VOO charges 0.03%, while SPY charges 0.09%. With all else equal, the fund with the lower fee is more aligned with investors' best interests.

What builds wealth the fastest? ›

One of the key ways to build wealth fast -- and over the long term -- is to earn passive income. And one of the best ways to generate passive income is to own one (or several) rental properties.

How to turn $1,000 into $10,000 in a year? ›

6 Ways to Turn $1000 into $10000
  1. Invest in Real Estate.
  2. Invest in Stocks and ETFs.
  3. Get Out of Debt Now.
  4. Start an Online Business.
  5. Retail Arbitrage.
  6. Invest in Yourself.
Jan 23, 2024

How can I double $5000 quickly? ›

To turn $5,000 into more money, explore various investment avenues like the stock market, real estate or a high-yield savings account for lower-risk growth. Investing in a small business or startup could also provide significant returns if the business is successful.

What does Dave Ramsey say is the most important thing to do? ›

Eliminate Debt Before You Invest

The No. 1 rule of the Ramsey investing philosophy is not to invest a dime — at least not until you eliminate all of your toxic debt, which he considers to be pretty much everything but your mortgage.

What is the first thing you should do if you want to start investing Dave Ramsey? ›

According to Dave Ramsey, you'll need to conquer the first three steps of the “7 Baby Steps” before following the investment tips. Let's break down the exact steps: Step 1: Save $1,000 for your starter emergency fund. Step 2: Pay off all debt (except the house) using the debt snowball method.

How much does Dave Ramsey say to have in savings? ›

Ramsey's general recommendation in his Baby Steps has long been to start with having $1,000 saved in a starter emergency fund. If you earn under $20,000 a year, the post on Ramsey Solutions said you may adjust this amount to $500.

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