Ideas To Help You Build Your Fortune
How would you like to build up a pile of money for yourself? You may be able to improve your chances of doing this if your investment plan sticks to three basic ideas:
1. Invest regularly.
2. Don't try to "time" the market.
3. Think long term.
Invest Regularly
By investing the same amount each month, you can build up a solid portfolio over time. One option for mutual fund shareholders is to enroll in an automatic investment plan (AIP) that electronically transfers money from a checking or savings account to a mutual fund account.
Investing the same amount on a regular basis - regardless of market conditions - is a strategy known as dollar cost averaging. When prices are low, the fixed amount you invest buys more shares of your mutual fund. When prices are high, it buys fewer shares. Over time, this strategy tends to reduce your average purchase price per share.
Automatic investing allows you to invest across all market cycles. This helps you stick to a long-term plan, riding out the short-term market swings.
You should understand that automatic investing requires a long-term outlook, and not everyone can invest regularly. Automatic investing doesn't ensure a profit or protect you against a loss in a declining market. And it won't keep you from losing money if you sell shares when the market is down. But investing a fixed amount on a regular basis can help you make steady progress toward your investment goals.
Don't Try To "Time" The Market
Trying to sell stock when you think the stock market is at a high point and then trying to buy stock when you think the market is at a low point is called market timing. Realistically, there are very few people who can time the market successfully on a regular basis. This is why many financial experts believe that the smartest thing the average investor can do is invest regularly and think long term.
Think Long Term
The stock market historically has gone up, but not straight up. Investors are reminded of this fact when stocks go through a period of falling prices called a correction.
Analysts measure corrections by the percentage change in prices from their highs to their lows. Decreases of five percent to 10 percent are called routine declines. Historically, these may happen several times a year. Decreases of 10 percent to 20 percent are called corrections. These have historically occurred about every two years. A decrease of 20 percent or more is called a bear market. Bear markets have happened about every three years, on average.
Investors with long-term outlooks won't be alarmed by a routine decline or correction. In fact, a correction is a normal part of the investing cycle. Often times, a correction helps to remind people that the markets go down and involve risk. However, long-term growth investors may use it as an opportunity to buy some of their favorite stocks at lower prices.
The advice sometimes offered to investors is "don't get too caught up in watching the stock market's changes from day to day." It's fun to keep track of the stock market, but it makes more sense to watch its returns over longer periods of time.
The stock market has gone through many ups and downs. In 1987, the stock market crashed, and many analysts predicted years of poor returns. Instead, the markets recovered and hit new highs within the next 13 months. Of course, past performance doesn't guarantee future results, but investors who maintained a long-term focus have been generally rewarded by market returns.
While nobody knows where the stock market is headed, most experts agree that stocks are one of your best bets for reaching long-term investment goals.
By younginvestor.com
http://www.younginvestor.com/
