Everyone wants to know the secrets of the wealthy. How did they make so much? How do they know how to play the market? To be quite honest, if every wealthy investor divulged all of his secrets, everyone would be doing it. However, there are a few secrets the wealthy will throw our way, and here are five to live by:
- Know what you’re paying for fees: High-net worth investors go for broad diversification at the lowest costs, says CNN Money. When you get into actively-managed funds, you pay higher fees and they don’t always live up to the hype. Familiarize yourself with all the fees and taxes associated with your chosen investment
- before you actually take the plunge. Those costs can chip away at your earnings
- , so they should be a big part of the decision-making process.
- Don’t waste time searching for the next big thing. You’ll end up very disappointed, not to mention very stressed chasing the dream. Locating the next Apple or Google is nearly impossible to track, so focus instead on looking to own the whole market with a low-cost index. Go for cheap stocks for a better upside and smaller capital risk.
- Identify your risk tolerance.First determine why you’re investing. Is it for college? Is it for retirement? Is it for a big vacation? Thank about WHEN you will need that money, then think again how much you could comfortably afford to lose. Of course, no one wants to lose, but you should be prepared to take a loss here and there and still be able to sleep at night.
Knowing your end goal means you can better select appropriate investments. It’s all about finding the right portfolio mix.
- Boring stocks can pay off big.Instead of looking for the hot stock of the moment, consider that stocks from a lesser known company may pay off big. In general, you should look for a company that has a minimum of a $50 billion market cap, with a dividend yield approximately two times higher than the S&P 500’s dividend yield. You’ll also want to look out for balance sheet liquidity. Take a look at ratios and working capital calculations to check up on how healthy a particular company is. Concentrate on fuel, automobiles, and pharmaceuticals.
- Remain calm. Above all, don’t panic. Even experienced, wealthy investors take a hit sometimes and question what they’re doing. Take it all in stride, realize stocks are for the long term, and avoid making aggressive, panic-driven decisions in the heat of the moment. If you find yourself glued to the web for Wall Street’s latest numbers, stop looking. Turn off the TV. You’ll save yourself a lot of needless worry in the long run.
That’s not to say you should turn a blind eye to your investments. Research every investment before you make it, read over every statement you get, and generally check to make sure your broker is doing what you ask. If not, turn to a securities attorney for help.