To succeed at running a business it takes confidence. You make decisions in a hurry, often with imperfect information. That’s life in the real world. You take lots of risk with your business. Invest conservatively with the money you make.
The most important investing decision you make is how you allocate your money among stocks, mutual funds and cash.
But the skills that serve so well in nurturing a business may not be applicable when it comes to investing money where you’re up against other people who spend all day, every day, thinking about stocks and bonds.
Sure, some small-business people are great investors. But be honest: if you devote 60, 80 or 100 hours a week to your business, do you really have time to read 100 prospectuses to find 10 good stocks? Many financial experts say that despite their business acumen, business owners tend to be fish out of water as investors, quick to fall prey to overconfidence and a sweet line from a self-serving financial adviser.
You should compile a supersimple portfolio, one that requires little maintenance. The keep-it-simple approach can help you sleep at night, free of the second-guessing and doubt that plague aggressive traders.
ALLOCATE PROPERLY. Study after study concludes that the single most important factor in investing success is asset allocation – the mix of stocks, mutual funds, savings and cash in a portfolio. Cash, like bank savings is very safe but generally earns nothing once inflation has done its damage. A common rule of thumb says one should keep enough cash for 6 to 12 months of expenses. Of the remaining holdings, the stocks portion should equal one’s age, i.e. 50 percent for a 50-year-old. The rest of your portfolio should be in mutual funds and other savings.
AVOID CONCENTRATION. People who own businesses or have large stock options in companies they work for often have too many eggs in one basket. By diversifying — spreading money among a wide variety of holdings — you reduce overall risk, since some holdings may be up while others are down.
INCREASE YOUR SAVINGS RATE. To us the best option is purchasing shares in the credit union as it is a sure method to earn dividends annually and even if you take a loan, you continue adding to your investment as part of the loan installment is applied to your shares thus increasing your savings.
USE MUTUAL FUNDS. The easiest way to diversify and get inexpensive professional management is to invest in mutual funds. A single fund can have dozens of stocks or bonds. Very few individual investors are good enough at picking stocks to beat the performance they can get from funds, especially when broker commissions and other trading costs are factored in.
Starting is easier that you think, just set aside a certain amount from each job for savings/investing for example $100 from every $500 and invest in which option you determine is best for you!
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“A wealthy person is simply someone who has learned how to make money when they’re not working.” – Robert Kiyosaki
