Think You Know Everything About Investing? 5 Tips for Every Investor 

What we’ll cover:

• Before you start investing, you need to know your goals and understand your tolerance for risk
• Building a foundational knowledge of investing concepts can help boost your confidence as an investor
• A key to reaching your financial goals is understanding how to properly balance risk and reward

You don’t have to look hard these days to find DIY videos and articles for practically anything you want to learn how to do, including investing. 

Considering there are tons of free advice from colorful personalities (why are they always yelling?), podcasts and articles, it could be easy to think we have everything we need to navigate the investment world on our own. 

But no one can know everything, can they? Below are some tips that every investor can keep in their back pocket. No we’re not talking about a hot stock tip. These are some timeless lessons to help you avoid common investment mistakes and put you on the path towards becoming a smart, confident investor. 

1. Know your goals, make an investment plan

Know thyself. This classic nugget of wisdom holds true in many aspects of life – even when it comes to investing. 

Before you start putting together an investment portfolio, you need to know your goals and understand your tolerance for risk. If you don’t have clear goals and a plan, there’s little way of knowing whether your investment expectations and the costs and risks you’re taking on are reasonable.

What are you investing for and how much money are you willing to put up in pursuit of your goals? Questions like these can help you map out an investment plan strategy, allowing you to make informed decisions when you’re thinking about which types or what mix of assets to invest in (asset allocation) and for how long (time horizon). 

For example, let’s say you’re a young professional just starting your career, and your primary investment goal is to build your retirement nest egg. Generally speaking, your investment plan would be one with a long time horizon (we’re talking several decades) to give your investments the time they need to grow. And when you’re young, financial experts would suggest an investment portfolio strategy that’s designed for aggressive growth (think: more stocks than bonds). That’s because as a young investor, time is on your side: Your money has more potential to grow over the years, and your investments have more time to respond to the ups and downs of the market. 

2. Learn the investing basics: Knowledge is power

If someone asked you to explain diversification or how bonds work, would you be able to provide a simple, helpful answer? Being able to explain a concept to someone else is a good test to see if we really know as much as we think we do about a particular subject. 

To invest with confidence, you have to have some foundational knowledge of what you’re getting into. Whether you’re a beginner or an investor with a little more experience, it’s always a good idea to brush up on basic investing terms and concepts. For example, you may generally know what stocks, ETFs and bonds are, but what about their advantages and disadvantages? Or what roles can they play in your overall portfolio mix?

Having a solid foundational knowledge can help you avoid making investment decisions based out of fear or desperation in a time of market volatility or getting swept up by the latest investing fad. For example, if someone talks up an investment for being a “sure thing,” you’ll know to be wary because there are no “sure things” in investing. 

3. Be Goldilocks: Find an investment strategy that is “just right”

How do you find an investment strategy or style that is just right for you? The first step is to figure out what level of risk you’re comfortable with and then diversify your investments in a way that aligns with your risk tolerance. This is where bringing in a financial advisor to talk about your goals and timeline can be helpful. A professional can help lay out an investment strategy that makes sense for you, saving you from having to do tons of research on your own. 

A key to reaching your financial goals is to properly balance risk against potential reward. Some investors might take too little risk to avoid losses, and others might take too much in hopes of a big score. 

Playing it safe all the time is a double-edged sword. While you might avoid big losses, you might also fail to reach your financial goals. But the same goes for taking risks. Although it could potentially lead to a big reward, it could also lead to a big loss. And for some, it might be hard to stomach the anxiety of watching your portfolio value taking a periodic rollercoaster ride in the hunt for high returns.

4. Check on your investments regularly

Unless investing is your full-time occupation, it’s easy to set up an account and then forget about it for a while. Just because you’ve set your goals, made a plan and chose an investment strategy doesn’t mean your job is done. 

It’s a good practice to review your investments from time to time (e.g., quarterly or annually) for a few reasons. One is to make sure your mix of assets still makes sense for your goals. 

Another is that your investment portfolio’s mix of assets may have naturally shifted from your original allocation. This can happen when certain assets outperform others within a period of time. For example, if your portfolio’s original asset mix contains 60% stocks, a good showing in the stock markets could increase your stock allocation to, say, 80%. 

When this happens, you’ll want to consider rebalancing (or resetting) your portfolio to its original allocation to maintain the original level of risk you’re comfortable with. 

It’s also smart to review the performance of your portfolio. This means looking beyond the cool animated charts or graphs (we like these, too) on your account dashboard to see how your investments are really doing after taking things like inflation and fees (e.g., transaction, management, etc.) into consideration. 

So don’t just toss away your account statements when you get them. Pay close attention to the fees you’re being charged. Even if your account fees may seem low at the outset, they can add up and reduce your earnings over time.  

Not convinced? Consider an investment of $100,000 over 20 years with a 4% annual return. In 20 years, an annual fee of 1% can reduce your portfolio value by almost $30,000 when compared to a portfolio with an annual fee of 0.25%. That difference is nothing to shrug at. That’s $30,000 more you could have invested! 

As you review your statements, one important question to ask yourself is whether the performance or value of your investments justifies the fees you’re being charged. 

5. Keep calm and carry on (with some professional help)

When the market goes for a rollercoaster ride, the ups and downs can make anyone nervous. That’s understandable, but resist the urge of checking your accounts every few minutes.

During market volatility, keep calm and carry on. Wild drops in the value of portfolio might tempt you to make investment decisions out of fear or desperation. For instance, you might feel as if you have to unload troubled assets, but selling your assets at a loss can reduce your overall returns over time. 

The important thing to always keep in mind is that market volatility is normal and expected: Don’t panic. Generally, staying invested for the long haul puts you in a good position to reach your long-term investment goals. 

Take stocks for example. While stocks may see dramatic swings in the near term during times of market volatility, historically, their value tends to trend upward. This is why financial experts often talk about the importance of staying the course and focusing on the potential growth in the long term rather than market swings in the short term. Remember, slow and steady wins the race. 

Ok, no more cheesy aphorisms. 

Listen, it’s totally normal to feel anxious when the market is throwing temper tantrums, and it can be hard to tune out the chaos completely. If you are worried, talk to a financial advisor. Their expert insights can put the ups and downs of the market into perspective and help you determine whether you need to make any adjustments to your investment strategy.