Tips For Investing Money – Six Spectacular Tips Spearheading Money Investment Success
Mr. Krabs isn’t the only talking member of the animal kingdom concocting cooky cash schemes. Bikini Bottom houses as much nautical nonsense as an alarming amount of advice regarding what human listeners should do with their bottom dollar.
Fortunately, investors wet behind the ears don’t have to wait behind bankruptcy lines if they take the following advice.
Avoid historical cost fallacy
Although the rule sounds like a hair-pulling curveball thrown into logic and debate rhetoric, following this advice agrees with affluency. The historical cost fallacy is the age-old notion that one must hold an investment until at least the result reaches the break-even point, regardless of how long that takes or what the forecasted future is. In reality, that money is gone and what is available today is what remains. Much like making a bad bet in Texas Hold ‘Em without folding, staying in too long on a bad investment out of principle only busts the hand dealt.
Past performance is not indicative of future results
This self-explanatory rule warns that an investment will not automatically perform well, just because Lady Luck enjoys a longstanding relationship with the investment. Yesterday is today’s stranger. In a fast-paced modern world, new/unforeseen situations alter results in the blink of a then-covered eye. Much like Lebron James still occasionally misses layups, even Warren Buffet occasionally whiffs on a seemingly sure thing, due to the rapidity of changing winds. The Security and Exchange Commission helps investors weather the storm of wayward expectations by demanding mutual fund managers to make their clients aware of this cruel fact via SEC Rule 156.
Positive investment returns are rarely guaranteed
Apple may be the apple of investment’s eye today, but there’s always a chance the only image gleeful investors could eventually see is the worm in the Apple degrading their eye tomorrow. Particularly on long positions (holding an asset for more than a year), chasing the pot at the end of the rainbow fails to account for the potential second rainstorm that floods the beloved pot. This is what Warren Buffet means by his saying “In business, the rear-view mirror is always clearer than the windshield.” Greater expected returns is always the goal, but almost never the immediate, guaranteed result.
Diversify, diversify, diversify!
The latter two aforementioned tips lead to the portfolio prescription for the common illness of underperformance: diversification. What’s the big deal? The answer to that performance-saving question is that diversification mitigates unsystematic risk (the risk of specific investment, as opposed to factors related to the whole economic system/market). Diversification protects portfolios from being devastated by a dominant investment or sector invested in delivering underwhelming results, lowering overall risk.
Know the game of investment before playing
Blindly investing is never wise, whether venturing into real estate or collecting comic books. Seeing average people achieving superhero results on television off a fortunate garage sale find is the exception to the rule. Similarly, the garbage-to-glorious house flipping found on home improvement networks omit the many flops, due to the lack of sparkle that allures people and drives ratings. Ignorance always returns to the mean. For serious money management with new options, always consult a financial adviser, or someone with experience and qualifications beyond just trust. If one invests in something with a collectable community or profession, preferably seek a professional/collector of the item to pick their brain for the knowledge. That said, reading every book on investment theory in existence yields to the familiar phrase, “Experience is the best teacher.”
Money looks better coming in than going out
This piece of advice is much simpler than the other five and remains the best piece of advice Pro Bowl wide receiver Chad Johnson learned along the way of making over $46 million in contract earnings during his National Football League career. Perhaps one wouldn’t expect a football player who briefly changed his legal name to Ochocinco to administer solid wealth management tips. Regardless, catching this wisdom dissuades potential spenders from dropping the ball.
Following bad advice and bad investments sinks personal finances lower than the deepest depth of Bikini Bottom, putting someone between Patrick’s rock and a hard place. Following these six tips builds confidence to say “I’m ready” regarding money investment.