It’s easy enough for most Americans to get by — you keep up with bills, pay the minimum balance due and stash a little bit of your income in savings. But, as David Bach, finance guru and author of the Finish Rich and the Automatic Millionaire series, says, “We Americans are being 'low monthly payment-ed' to death. People underestimate how these little things add up.”
Stop getting by and learn to get ahead. Consider creating passive income to grow your money through investing. Playing the stock market may seem beyond the scope of your financial skills but, as Warren Buffet reminds us, “The business schools reward difficult complex behavior more than simple behavior, but simple behavior is more effective.” Buffet is a proponent of the “Rule of 72,” a handy shortcut that helps determine the worthiness of an investment based on how long it will take to double your money, given a fixed interest rate.
The Rule of 72 is a tool among many. Modern technology has made investing accessible, affordable, and personalized - you may even have some fun! Here are some tips to begin your journey to financial freedom.
Getting Started
First things first: Determine what you’re willing to risk. The amount of risk you take is aligned with the type of investments you choose. Generally, high risk can equal high yield and safer plays may not pay.
There's no one-size-fits-all answer to deciding how much to invest, i.e., what you’re willing to risk. Most financial experts suggest to invest at least 10 percent of your income. The important thing is to begin as soon as possible (like now!) and make it a habit. Even small amounts can generate a considerable return over time.
The Basics
A run down of the basic types of investments:
- Stocks (a.k.a. equities) represent partial ownership of one or more companies. Investors make money based on company performance. When a company does well, the stock value can increase and result in shareholder payouts. While stocks have high return potential, they tend to be more risky than other investments.
- Bonds (a.k.a. fixed-income investments) are generally more stable than stocks, but offer less return. When you buy a bond, you loan money to a government or corporation. You will paid back the loan amount at face value, with interest. Bonds can be held or traded.
- Cash investments are safe bets but don’t pay you much to play. CDs (certificate of deposit), money-market accounts and savings accounts are examples of cash investments.
Settling on a Strategy
It’s tough to call shots in an unpredictable market. Swings, dips and turns are certain but a well-diversified portfolio will likely withstand any market condition. Simply put, never put all your eggs in one basket. Diversification is a blend of investments in a single portfolio. The hype behind all the “diversify your portfolio” encouragement is based on the thought you’ll face lower risk and yield a higher return.
The Bottom Line
Investing is an art that demands discipline and practice in exchange for financial freedom. Knee-jerk reactions are a no-no and patience is as virtuous as it’s claimed to be. A diverse portfolio paired with a reasonable investment horizon is a strategy that will weather most storms.
If you’re in need of a reputable professional to help get your investment journey off to a running start, give The LizLuke Team a call – we have a treasure chest of finance folks who will support your path to financial freedom.
The LizLuke Team provides comprehensive transaction management - we handle matters that matter and the small stuff, too. Connect with us today to chat about your real estate journey. Learn more and contact us at lizluke.com.
