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5 Investing Tips That Could Make a Difference in the Portfolio of Millennials

Posted by : Premraj | Posted on : Wednesday, August 23, 2017

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Savings can provide a financial safety net but it won’t get you on the path to financial freedom. One of the reliable paths to financial freedom is the path of investments because invested money has a chance to grow faster than any savings account. The unfortunate fact however is that college doesn’t provide young folks with actionable information on how to invest – you’ll need to learn that on your own.

Below are five no-frills investing tips that could keep your portfolio buoyant irrespective of what happens on Wall Street.

1. Start investing as soon as possible

Before you start investing, you should first find a way to reduce or pay off your high-interest credit card debts and student loans. Once, high interest debt is out of the way, you should begin investing money as soon as you can. Building an investment portfolio early in your career will help you earn compound interest, which can have a significant impact on your portfolio.

Compound interest helps you earn an interest on your initial investment and you’ll also earn interest on accumulated interest. In addition, if your employer offers a matching 401K plan, you should contribute the maximum amount possible because you are practically getting free money on the matching contributions.

2. Consider investing in index funds

Picking stocks is excellent strategy, if you have the skills and experience of Warren Buffet. The problem however is that not many people know how to spot potential winning stocks. Following the trades of the pros is also a futile attempt because Wall Street insiders usually enter and exit trades before it makes the news. Investing in index funds is a smarter alternative for playing the markets.

Terrence Porter, an analyst at Weiss Finance notes that “with index funds, you don’t have to worry about the highs and lows of individual stocks; yet, you can still get comparable market returns obtainable in the general market.”

3. Don’t put all your eggs in one basket, seriously

Any investment advice telling you not to put all your eggs in one basket probably sounds cliché; however, diversifying your assets is the only way to limit your downside when things go south in the market. You should ideally diversify your portfolio across multiple industries such as technology, healthcare, consumer discretionary and industrials.

You should also consider diversifying your portfolio across different sectors of the same industry. It also makes sense to diversify outside your immediate geography and pay special attention to emerging markets.

4. Pay special attention to investing costs

The cheapest way to invest on Wall Street is to manage your portfolio yourself. If you are in charge of your portfolio, you’ll find it much easier to pay attention to your transaction costs so that they don’t eat too much into your margins.

If you employ the services of a firm to manage your portfolio, you’ll need to pay extra attention to the cost of investing, For instance, you’ll pay at least 1% on the total amount of money in your portfolio. You’ll pay transaction costs of at least 1% when your broker buys securities on your behalf, and you’ll still pay commissions on your trades.

5. Ignore the market noise

There are many self-styled experts, gurus and pros giving out conflicting investment advice on Wall Street. However, if you are not careful, the multiplicity of their advise will force you to jump in and out of trades with every fluctuation in the market.

Conflicting interpretation of market news could also force you into a state of virtual paralysis where you are unable to make an investment decision. Once you have created an investment plan and backtested it against historical data, you should develop the discipline to stick with your plan irrespective of daily stock price movements.

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