We asked over 20 investing experts to share their best investing “secret” for anyone just getting started with investing. So whether you're a newbie investor or someone with a little experience, you'll find an investing hack just for you!
1. Focus on risk management
Investing done right is focused on risk management. It is a simple, mathematical truth baked into how money compounds to create wealth. A 20% loss only requires a 25% gain to get back to even, but a 50% loss requires an astounding 100% gain and a 90% loss requires an impossibly large 900% gain — just to get back to even. The math is unequivocal: It is not how much you make when you are right that determines your wealth, but how much you lose when you are wrong.
— Todd Tresidder, Financial Coach at FinancialMentor.com
2. Be hesitant with friendly advice
You know that stock tip your friend/family member/co-worker has for you that is a “sure thing”? Newsflash: it's not! I've had countless people approach me looking for my approval on some random stock tip that someone (usually with no investing experience) has given them the inside scoop on. Next time this happens, the easiest way to make money is to not invest in it.
— Jeff Rose CFP, founder of Good Financial Cents and author of Soldier of Finance
3. Live within your means
The best secret I can provide is to save more than you make and live within your means. Although this is not a new idea and is rather simple I am amazed at the success my clients have, when they do that one simple thing. High income will not make you wealthy, saving and spending responsibly can.
— Damian Rothermel, CFP at Rothermel Financial Services
4. Invest automatically
The easiest way to get started investing is to do it automatically, just like a 401k. If you want to contribute the max to your Roth IRA each year, set up direct deposit from your paycheck to automatically deposit $192.30 (if paid bi-weekly) into your IRA account. Most brokers offer this option, but you can simply ask for the broker's routing number and then your account number.
— Robert Farrington, founder of The College Investor
5. Think long-term
Don't try to time the market — you will not succeed. It is impossible to understand, take into account and predict all of the forces that affect short-term market movements. Instead, stick with winning long-term investments that you carefully and methodically research.
— Anton Ivanov, founder of Financessful.com
6. Find an investing mentor
Find someone that is doing what you want to do. Even if they seem untouchable. If you want to learn about investing, the best way I know is to find a mentor that can teach you what happens in real life, not just what is shiny and written about.
— Jaime Tardy has interviewed over 120 millionaires at EventualMillionaire.com
7. Follow the 20% rule
After you’ve done your research and purchased your first stock, keep an eye on it and once it has either gained or lost 20% it is time to sell it and move on to the next option. A general rule is if the stock stays above 20% or higher for more than 3 weeks, then you can hold on to it for up to 8 weeks, but the goal is to sell while you are still ahead. You can always buy the stock again after it falls and then make more money from it again.
— Alexander Dolin, CT, M.Div, CLC, Founder of Fully Alive Life Coaching
8. Be patient
Be patient. Unless you're incredibly lucky, you're not going to get rich overnight. Invest for the long-term and don't be swayed by short term market fluctuations. Review and adjust your investments once or twice a year, at most. Look at the long-term performance of any particular investment (five or ten years) rather than its short-term performance.
— David Bakke, Financial Expert at Money Crashers
9. Don't forget to roll over your 401(k)
While you're at an employer, the employer often pays administrative fees related to the maintenance and record-keeping of your 401(k) plan. These are surprisingly expensive. After you leave, your (now former) employer no longer wants to pay these fees for you — and they're often charged directly to your account, in the form of increased asset management fees. All the more reason to roll over immediately whenever you change jobs!
— Jon Stein, Founder and CEO of Betterment
10. Simplify asset allocation
An appropriate asset allocation is a basic investment tenet. Unfortunately many people struggle to optimize their portfolio allocation for their life stage and risk profile. Asset allocation is made all the harder as many people have accounts spread across different financial institutions and 401k providers. Services, such as Jemstep's Portfolio Manager, provide people with a comprehensive view of all their accounts in one place and are designed to help optimize their overall asset allocation. By selecting quality funds to be held in each of their taxable, tax free and tax deferred accounts, the service also ensures that buy and sell recommendations help reduce the impact of fees and taxes on the portfolio.
— Simon Roy, President of Jemstep
11. You can’t beat the market
My biggest investment “secret” is that you can't beat the “market.” Research has proven this over and over again. Instead of trying to pick the next hot fund or hot stock, most investors are better off owning a globally diversified portfolio of low cost, passively managed mutual funds and/or ETFs. What about Warren Buffett? Doesn't he “beat the market?” The reason Warren Buffett can beat the market is that he doesn't invest in businesses…he buys them. There's a BIG difference.
— Tyler Gray, Financial Advisor at SageOak Financial
12. Invest in solid companies
Look for a company out of favor that has significant assets not on its balance sheet. For example, a company with a lot of patents, or a company with a lot of real estate. When the mad cow scare happened in Japan the stock plummeted with the news. I told an investment banker that McDonalds would be a good buy because even if they never sold another happy meal think about all the prime real estate they own. Also before everything else I always consider the management of a company. If the team has a history of success chances are good they will be successful in the future.
— John Paul Engel, President of Knowledge Capital Consulting
13. Remove the emotions
The best kept secret about investing is to take your emotions out of it. Be methodical, well diversified, and aware of your risk tolerance.
— Jeremy Baldwin, Financial Representative at Journey Financial Corp.
14. Harness the market returns
There are two fundamental investment “religions” that you can follow: 1) try to “beat the market,” (what 90% of investors do) and 2) try to simply “harness” the market returns (what 10% of investors do). The first is 5-8x more expensive, exposes you to big mistakes that lower returns, and has very low odds of success, but is exciting and heavily marketed by Wall Street. The second is inexpensive, takes little time, delivers higher returns with lower risk because it is not premised upon predicting the future, but rather riding the growth of global economic growth.
— Mitch Tuchman, founder of Rebalance IRA
15. Rebalance your portfolio often
Develop an asset allocation you're comfortable with (60% equity/40% fixed income, etc.) of different asset classes (U.S., Int'l, Emerging Markets, Bonds, etc.) and then rebalance once-a-year back to the original asset allocation. This strategy removes emotion which creates irrational investor behavior, and a scenario where you buy low and sell high.
— Michael Solari, CFP at Solari Financial Planning, LLC
16. Know the different types of advisors
Understand the difference between a broker (or an “advisor” at a brokerage house) and a fee-only independent registered investment advisor before making the decision to work with either one. A broker's legal obligation is simply to recommend investments that are “suitable” to you. On the contrary, a registered investment advisor has a legally-imposed fiduciary obligation to act in his/her client's best interests when making investment recommendations. The suitability standard is much lower than the fiduciary standard. Avoid the risk and hire an independent registered investment advisor that works on a fee-only basis.
— David G. Barnes, J.D., Chairman, President & CEO at Heber Fuger Wendin, Inc.
17. Create a healthy portfolio
A healthy portfolio is a well-diversified portfolio with allocations to equities, fixed-income, and commodities and includes a range of geographies and markets. Also, keep in mind that the beauty of investing lies in the ability of your wealth to grow over a long period of time; the short-term market “noise” is not what matters. With a sound investing strategy and a well-diversified portfolio, there is no need to follow the day-to-day ups and downs.
— Elle Kaplan, CEO and Founding Partner of Lexion Capital Management
18. Take the first step
Begin investing with your very first paycheck, that way you will never know money is missing. Despite what the media says, there is never a bad time to begin investing. Getting started is the most important and the hardest step. As Warren Buffet said, “The best time to invest is when the market is open.”
— James R. Peters, CFA, CFP, Chief Executive Officer and Managing Principal, Integress Financial LLC
19. Keep investing costs low
My best investing “secret” for new investors is to start investing early and keep your internal investment costs low. Consider utilizing low-cost, diversified index funds in your portfolio to help achieve this. Reducing costs is often an overlooked method of increasing long term returns in a portfolio.
— Taylor Schulte, CFP, Wealth Management Advisor at Beverly Hills Wealth Management
20. Implement imperfectly
By this, I mean get started, with as much as you can afford, as soon as you can. Get it automatically invested on a monthly basis into a mutual fund. As you can, learn about mutual funds and move it around as you learn more, but getting started is 1/2 the battle!
— Shanna Tingom, Financial Advisor at Edward Jones
21. Look at the U.S. dollar
When considering whether the economy is actually doing well, look to the U.S. dollar. That will actually tell how well the markets and U.S. economy are performing. Don't listen to the hype! Check your ego at the door; i.e. don't let your emotions rule your decisions. Make a plan and stick to it when you invest. Investing and getting a positive return is like Economics 101; look to supply and demand to help make your investing decisions. If there's a high supply, buy. If there's a high demand, sell.
— Sam Seiden, Chief Education Officer for Online Trading Academy
22. Maximize tax-free earnings
For the military who want to invest, you need to maximize your tax-free pay on deployment. By investing in a Roth IRA and Roth TSP when you're deployed, you earn that money tax-free, it grows tax-free, and is withdrawn tax-free after age 59.5. You also can invest in the Savings Deposit Program (SDP) and earn a guaranteed 10% interest on up to $10,000. That's a free $1,000 a year!
— Spencer, founder of MilitaryMoneyManual.com
23. Just do it
The most important secret for investing is to just do it! You will never achieve your savings goals if you don't start. Remember: the earlier you start the better!
— Michael Prus, President at Scale Investment Group