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The Eight Essentials for Beginning Investors
It's hard to start a challenging new endeavor like investing if you haven't been taught the necessary skills. School systems saw no merit in educating students on the fine points of financial planning until recently. Experiences as parents or spouses require more communications skills than financial ones. And it's not something we learned on television, a medium too busy enticing us to "win" a million dollars, instead of teaching us how to manifest it ourselves.
Many people have put advancing careers, finding a lifetime partner, creating a home, or raising families on a much higher rung than dealing with financial planning. The reasons why aren't important. What's important is that folks not find themselves clueless while holding the financial bag.
Some people don't take an interest in investing because they think it's dull and boring. The earth-shattering news is... investing can be fun! Think about the great feeling that accompanies a job well done. Doesn't matter if it's completing an important project at work, balancing the checkbook, or keeping a souffle rising. There's a delicious sense of power and security that comes with accomplishing a necessary task.
Becoming a successful investor stimulates all these feelings. Think of investing like planning a trip -- a trip that will enhance your life and expand the possibilities of your future.
Remember, once that perfect souffle is eaten, there's nothing left to show for it. But creating a financial plan lasts a lifetime.
Without a doubt, learning is important for any investor. Gradually build up your knowledge by reading everything available about investing. Read it all -- even the stuff that scares you. If you don't understand some material, pick it up again a few months down the road. You'll be amazed how things get clearer as you become familiar with the jargon.
Listen to everyone's advice, but think it through. Ask questions, questions, and more questions. Talk to successful people; at least they have a clue. Always double-check the answers you get -- even from professionals. As an investor you will be making tough decisions; the more ammunition in your arsenal, the easier the choices will seem.
Most importantly, don't let others intimidate you while you're learning. It's your future, your money, and no one cares more about it than you do.
Start now! Time makes a difference in your favor, thanks to the power of compounding. By beginning early, you can enjoy the luxury of being aggressive, as you'll have time to recover from any mistakes.
If you're no longer young, don't be discouraged. Remember, if you wait a year to get started, you're going to be a year older. Avoid filling your mind with scenarios of impossibilities and potential failures.
Let yourself be inspired by the words of Goethe:
"Whatever you can do or dream you can, begin it. Boldness has genius, power and magic in it. Begin it now."
Avoid the pitfalls of buying a stock because everyone else is. You'll get hot tips from your brother/dentist/massage therapist -- but only buy because you've done your research and have decided it's a proper investment for you.
A goal is the end toward which all your efforts will be directed. Dreams, happiness, children, desires, and independence require money, energy, and time. Once you've established your goals, become passionate about them.
Devise a plan to help them become reality. Money itself isn't the goal; a better quality of life is. The money you will generate through investing will be a means toward realizing your life's vision.
Paperwork. Yuck. It's gruesome, messy, time-consuming, and annoying -- but it's a necessary evil. Keep accurate records and save all your account statements. People who keep accurate records are worshipped and adored by spouses, children, and the IRS.
Put money away for savings first, before bills, before food. Just do it!
Instinct and intuition are valuable assets. If a stock is repeatedly registering in your mind as a potential investment, indulge the feeling -- not by buying it, but by researching it.
When you find yourself obsessing over one stock, ask yourself: "Why is it that this appeals to me? How did the information come to me? Where can I go to learn more about this company or industry?"
Give yourself credit for trying, even if you only take baby steps. It doesn't matter how long it takes to achieve your goals, as long as you consistently continue moving toward them. No baby ever learned to walk without a parent's repeated encouragement.
You've already conquered toilet-training, puberty, dating, acne, career challenges, giving birth, identity crises, and getting married; compared to these, investing is a breeze.
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Thanks to the following Fools who contributed to the preparation of this column: 2gifts, gradfool, BAE40, EBraznell, Gerremil, TMF Hunzi, rgbbcs, TMFJeanie, jeanpaulsartre, TMF Karen, KBecks, KHNP, MBuckley, NGoldbeck, Selphiras, TMF Keenley, TMF 2Aruba, tsouth, washu, zippykitty, Zorroman, JustAndy, mjskas, doogiejoe.