The Four Basic Principles of Smart Investing

1.       Diversify your investments. Don’t put all your golden eggs in one basket – buy some stocks, bonds, real estate, etc. The particular mix of investments and what proportion you have in each basket depends upon your particular needs and preferences.

2.       Manage your overall level of risk. Decide the maximum amount of risk you can take in your investments, and never exceed that whatever the temptation. Don’t look just at the risk of one investment basket; consider all your baskets together. If you have 80% of your assets in low to mid-risk investments, then maybe it’s okay to put 20% into high risk. Just make sure that your “serious money” that you must have to meet your basic goals is appropriately invested.

3.       Plan for the long term. Identify your goals and objectives for the future and put timelines on them. This helps you put your investment needs into perspective. For example, if you want to retire with a million dollars in ten years, you’ll need to invest more money now than if your timeline was thirty years. Also, money that you want to spend in the near-term (less than five years) should usually be invested at lower risk, so that when you need to cash in your investment it is less likely to be at a loss.

4.      Actively watch your investments. The investment world changes quickly, more quickly every day as technology advances and information is exchanged at ever greater speeds. You must stay vigilant to recognize significant changes that affect your investments, so that you can act appropriately in a timely manner. No longer can investors assume that an investment is a safe bet for the long term, because the factors that made it a safe bet can change rapidly. If you ignore your investments today, you may easily be surprised at their absence or lack of progress when you want to cash them in 20 years from now.