The 10 Investing Secrets Every Rich Person Knows by Heart

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Looking for a new investing strategy? Sorry, but that isn’t what you’ll find here. Investing doesn’t really change from year to year. It just requires patience, consistency and a focus on long-term results.

10 Smart Investing Tips for 2021 and Beyond

If you’re ready to make 2021 the year your money sizzles, follow these 10 investing tips. Then sit back and watch that nest egg grow.

1. Investing while you have debt? Here’s how to prioritize.

You don’t have to wait until you’re debt-free to start investing. But sometimes it does make sense to focus on paying off debt first. Here’s how to prioritize:

  • Your employer’s 401(k) match. Contribute to your 401(k) plan to get your company match unless doing so would put you deeper in debt.
  • Paying off your high interest debt. Any debt that’s costing you above 6% to 8% a year in interest (ahem, ahem, credit card debt) gets priority before you invest further.
  • Maxing out your Roth IRA. Contribute as much as you can to your Roth IRA once you’ve slashed that costly debt. The Roth IRA limits for both 2020 and 2021 are $6,000 if you’re under 50 or $7,000 if you’re 50 or older.
  • From there, it’s up to you. You decide if you want to put additional money toward investing or lower-interest debt.

2. Start with low-cost index funds.

When you’re new to investing, the best place to start is with S&P 500 index funds — which happen to be Warren Buffett’s favorite choice for most investors. You’ll become an investor in 500 of the biggest companies in the U.S., like Apple, Amazon and Johnson & Johnson. With a single purchase, you’ll get a diversified portfolio.

3. Minimize your investment fees.

Look for funds with an expense ratio below 0.1%. That means less than $1 of every $1,000 goes toward fees. A few good S&P 500 funds that meet this criterion in no particular order: SPDR S&P 500 ETF Trust (SPY), S&P 500 Index Fund (SWPPX), iShares Core 500 ETF (IVV), Fidelity 500 Index Fund (FXAIX) and Vanguard S&P 500 ETF (VOO)

4. Invest no matter what the stock market is doing.

The most successful investors practice dollar-cost averaging, which means you invest on a regular schedule whether the stock market is up or down. Your money will buy less when the market is up, but you reduce your investment costs over time because you’re locking in some low prices as well.

5. Take some risks (but do it the smart way).

By “take some risks,” we do not mean you should invest everything in bitcoin or try your hand at options trading. But for your money to grow, taking some risk is unavoidable. When you’re a beginning investor, it’s important to invest in stocks mostly — and that involves short-term risk. Fortunately, the stock market has a proven track record of recovering over time. As you get closer to retirement, you’ll reduce your risk by investing in bonds more and in stocks less.

6. Let a robot make your investment decisions.

Figuring out the right mix of stocks vs. bonds based on your age and risk tolerance can be tricky, even for an investment pro. So why not outsource the task to the robots?

If you have a Roth or traditional IRA or a taxable brokerage account, you can often use a robo-advisor to automatically allocate your investments. Don’t worry. They usually deliver superior results compared to their human counterparts, and they’re a lot cheaper.

Though robo-advisors are unusual for 401(k)s, you can accomplish automatic investing by choosing target-date funds.

FROM THE INVESTMENT FORUM

7. Never invest your emergency fund.

If 2020 taught us anything, it’s the importance of having an emergency fund that could cover you for at least three to six months. This money does not belong in the stock market. Keep it in a savings account, money market account or certificate of deposit (CD). The downside, of course, is that interest rates are minuscule. But because these are FDIC-insured accounts, you know your money will be there no matter what.

8. Understand the difference between investing and speculating.

The world couldn’t get enough of Robinhood users and all their risky stock trading moves. Short-term trading is basically gambling. You’re betting on the daily whims of the market. Investing is about leaving your money to grow for five to 10 years or longer. If you want to risk money on day trading, go ahead. But treat it like slot machine money: Only invest what you’re OK with losing.

9. Avoid super cheap stocks.

When you see a stock that costs a couple bucks or less, don’t mistake it for a bargain. Those stocks are often super cheap because they may soon be worthless. The companies that issue penny stocks usually have no history of profitability, and many turn out to be scams. Investing in stock of a bankruptcy is a bad move, even if the company was once profitable. In bankruptcy proceedings, common stock usually winds up being worthless.

10. Don’t think the stock market reflects reality.

The stock market tells us what investors think will happen six months or more from now. It doesn’t tell us anything about the current reality. That’s why the stock market can surge in a terrible economy, as we learned throughout 2020.

Robin Hartill is a certified financial planner and a senior editor at The Penny Hoarder. She writes the Dear Penny personal finance advice column. Send your tricky money questions to [email protected]