Start by understanding that you make money twice. First, you work hard to earn it. Then you must work hard to wisely invest and grow it.
One of the biggest mistakes I see people making is waiting to invest. The power of investing comes from doing it early and often and by taking advantage of earnings and dividends. Compounding on those earnings and dividends, with the opportunity of time, will help you build exponential wealth. It’s not even about how much you earn; it’s about staying consistent with investing the small amounts you have, as often as you can, over time.
Another mistake people make is not having clear objectives and goals as to why they are investing. Are you investing for retirement, to pay for your child’s college, to start your own business in ten years, or to move to a different city? When you’re not clear on your goals and you see the stock market going through wild short-term swings and start to panic, you’ll invariably start to sell at a loss because you weren’t really clear on why you were investing. If it’s for the long-term, you know that you can weather a short-term disturbance in the market because you know you don’t need this money for another decade or two. You have that in mind. Trying to time the market and expect overnight returns is extremely dangerous. Even the best traders on Wall Street struggle to predict what the market will do tomorrow.
When things get hard, go back to your why. Everyone’s why is going to be different, and also keep in mind that your why can evolve. When I first graduated college and started earning my first paycheck, my big why was to get on my feet financially. Then it became providing for my family and paying for my kids’ college. Now it’s growing my business and achieving financial independence. Standard investment advice includes emphasizing the importance of not having all your eggs in one basket. That’s good advice, whether you’re talking about investing in another’s success and happiness, or more traditional investments using your own money. In the latter case, you shouldn’t have more than a certain amount in stocks, bonds, mutual funds, or real estate. Diversify! That way, when one type of investment goes down, another is hopefully going up.
