3 investing lessons I wish I had learned sooner
Author: Katie Brockman
Source: The Motley Fool
Investing is one of the most effective ways to generate wealth over the long term, but it can be confusing.
It's often hard to know whether you're making the right moves, especially when you first get started. But serious investing is a game of years and decades, and if you wait too long to get your strategy on track, you could miss out on an enormous amount of potential earnings.
Everyone's financial situation is unique to them, so not all advice applies universally. But as I continue on my investing journey, there are a few things I wish I'd done sooner.
1. Start investing earlier in life
When I was in my early 20s, investing in the stock market was the last thing on my mind. I was focused on graduating from college, finding my first real job, and living on my own. When I did have cash to spare, I had never even considered investing it or putting it into a retirement account.
Looking back, I see how much I could have supercharged my lifetime returns if I had started investing earlier.
The average person begins setting money aside for retirement at 31, according to one survey. If, for example, you were to invest $300 per month in your retirement accounts from 31 to 65, and you averaged an 8% annual rate of return on those investments, you'd wind up with a portfolio worth around $571,000.
However, if you started investing that $300 per month at 25 instead, when you turned 65, your portfolio would be worth around $933,000. In other words, by starting to invest just six years earlier, you'd increase the size of your nest egg by more than 60%.
Of course, it's impossible to go back in time and start investing for your retirement earlier. But if you're still putting it off, you could be costing yourself a lot more profits than you think. So regardless of your age, the best time to start investing is now.
2. Learn not to worry about market downturns
Once I did start investing, I became preoccupied with my investment account balance. I'd check my investments every day to see how much they'd grown or shrank, and I'd start to panic when my balance fell. When I experienced my first market downturn, I strongly considered pulling all my money out of stocks and never investing again.
I now realize, however, that market downturns are normal, and not as dangerous to one's financial health as they can seem.The stock market regularly experiences significant short-term declines, but it has always recovered from even the worst crashes and moved onward to new heights.
If you're nervous about market crashes, remember that investing is a long game. Given enough time, the overall value of a diversified portfolio of investments should more than recover from any downturns, even if not every stock you own does. By investing in solid companies and funds, you're likely to experience positive long-term returns.
3. Realize that my investing journey may be different than others'
I have a confession to make: I don't enjoy picking stocks. I don't like researching companies, digging into an organization's financial statements, or studying all the nitty-gritty details of a particular industry.
For the longest time, though, I thought that I had to invest in individual stocks to be a successful investor. I assumed I'd either need to suck it up and start picking stocks, or come to terms with the fact that I'd never make a lot of money as an investor.
However, I've since learned that there are many ways to invest, and everyone's journey will be different. Personally, I prefer the hands-off approach of investing in broad-based and balanced funds. I like this strategy because I never need to worry about choosing individual stocks, and I can simply leave my investments alone and let them grow.
There's nothing wrong with choosing stocks, and it's certainly possible to make a lot of money that way. But it's not the right strategy for everyone. Once you ditch the idea that you have to invest a certain way to be successful, you can figure out which approach fits your preferences and skills, and hopefully get yourself on track to a more prosperous future.
Everyone makes investing mistakes, and I've learned a lot from mine. If some of them seem familiar to you, profit from my example, adjust your course, and start doing what it takes to make the most of your money as soon as you're able.
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