Everyone wants to receive a positive return on their investment. We are delaying the use of our money so that we can have more money in the future – at least that is the goal. However, many people are seeing negative ROI over the past several years. These are the five rules that can help you maximize your money!
1. Don’t invest for the short-term.
I am just not smart enough to make sense of every single nuance of the entire world. And sometimes seemingly unrelated items have a major impact on financial performance. For this reason, I spend a great deal of time thinking about which investments to choose before I acquire them, and then I hold them for the long term. Day-trading (or anything like it) has a feeling very comparable to gambling in Vegas, and it usually winds up with the same result.
2. Diversify Your Investments
Don’t think just about the stock market. I have personally invested about 50% of my money into publicly traded stocks and mutual funds, but my best returns on investment over the past ten years have occurred through private investments. When managed correctly, rental real estate is an excellent investment that provides an immediate return through rental payments and a long-term return through property value appreciation. Other alternative investments include starting a business, investing in another’s business, land, commercial real estate, and private bond offerings.
3. Maintain Substantial Margin In Cash
If I do not maintain liquidity, it becomes very difficult for me to maintain rules One and Two. Without financial margin, I am more likely to be “jumpy” and leap out of investments when they trend downward.
Having substantial cash on hand also allows me to take advantage of tremendous opportunities – many of them may be “once-in-a-lifetime” opportunities that will require cash money right away. If all of my money is tied up in investments (or all of my money is gone), then I am not able to take advantage of these great investments.
For me, it is helpful to keep 10-15% of my money in cash or cash equivalents. I hold a lot of my savings in online FDIC-insured savings accounts that pay interest equivalent to a two-year CD, but do not have the liquidity issues that CDs have. I really like Capital One 360 – it’s my favorite!
4. Conduct Trades Online
Brokerage commissions and fees can consume substantial portions of an investment’s return – especially when one accounts for the fact that the fees continue even when the market value drops.
I personally use Sharebuilder for my online trading platform, but all of the online trading platforms like Scottrade, E*Trade, and TDAmeritrade are great as well. There are numerous ways to learn more about how to invest in stocks and bonds, and it is important to gain that knowledge. However, once you are ready to roll with the actual transaction, the online route is much more economical and does not require a phone call and a reliance on a broker to execute the trade.
5. Invest In What You Know
I don’t invest in random items that I have “heard” are good investments because it will be extremely difficult or even impossible for me to know if things are going well or how certain news might impact that investment. I like technology. This means that I naturally follow what is happening in the technology market. I’m a consumer of their products. When I see a good solution or product, I know it because I am directly impacted by it. That means I am a more informed investor when it comes to technology companies. I love manufacturing, and I continue to watch and monitor what is going on in the world of manufacturing. It also means I am an investor in it.
My dream of “helping people accomplish far more than they ever thought possible with their personal finances” has been the largest single investment I have ever made – because I BELIEVE IN IT and because I KNOW IT.