5 Basic Rules to Follow to Make Money on Investing

Make Money on Investing

The economy is a scary place right now. You may feel like the safest thing to do with your money is stuff it under your mattress.

However, now would be a good time to invest since there are so many opportunities to buy low and watch it grow.

But what if you aren’t sure where to start? How do you know what would be a smart investment? Are there any rules to follow?

Whether a beginner or a pro, investing should always follow the same basic principles. Here are five basic rules that will help you to invest smart for your future.

1. Invest Long Term and Start Early

Investments are not a get rich quick scheme and if you are considering investing in something that promises that, reconsider.

When investing, it’s always best to think long term and don’t wait.

Begin with an emergency fund in a high-yield savings account. Once you’ve built up enough cushion in this savings account to live off for six months you can begin to think about other investment opportunities.

You don’t need a lot of money to start. You can find some opportunities to buy partial stocks on apps like SoFi or Stash where you can start investing with just five dollars.

Once you’ve chosen where to invest, sit back, and let it grow. The safest, most effective investments take years to work their magic.

2. Be As Diversified As Possible

Diversification cannot be overemphasized. Ever heard the expression, “Don’t put all your eggs in one basket?” This is oh so true for investing. One basket can get smashed and all your eggs would be crushed.

But if you put a few eggs here then wait a month and add some eggs over in a different basket, the chances of your eggs all being crushed are slim to none.

When considering your asset allocation, or how you will ration out your investment between stocks, bonds, and cash investments, consider all three.

Historically, each of the three asset categories will take turns in fluctuations. Keeping an investment in all three will help you ride out losses in one asset by having higher returns in another.

You should also diversify when you invest. This idea of investing over time is called dollar cost averaging. This protects you from making one big investment at the wrong time, like when the market is volatile.

3. Balance Risk and Rewards

Every investment comes with its own risk but the higher the risk, the higher your chances of getting big rewards. It’s important that you balance these two areas out.

Going back to diversification, you can protect yourself from too much risk and too little reward by investing in a mixture of higher-risk investments and lower-risk investments.

Real estate is a solid investment that brings good rewards with little risk. Of course, most people aren’t ready for the stress of becoming a landlord.

Luckily, you can invest in real estate by using a real estate crowdfunding platform like Fundrise or Diversyfund.  This allows you to make some rental income without worrying about traditional landlord efforts.

4. Invest with Less Overhead

When investing, the point is always to make money so you should focus your investments on those that put the most returns into your pocket.

Look for investments that are tax-deductible and that don’t have fees or garnishes attached to the returns.

Always pay off high-interest debt before you invest. It would be hard to find an investment that would outearn the interest on a debt that you owe.

5. Have a Yearly Check In

Rebalancing your investment portfolio yearly is something the pros do as a habit.

Just as you would have a yearly check-up to make sure your organs are all functioning as they should, it’s important to check in on your investments yearly.

You may need to move things around to rebalance your risk to rewards ratio we talked about.

Conclusion

There is so much information out there about how and where and when to invest. The average investor plays it smart, however, by following a simple and safe investment plan. By following these five rules, you can do the same and create a healthy investment portfolio to build assets that will work for you instead of against you.

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