This month's One Minute Money Show features investing tips from financial expert, Jean Chatzky. Here are some pro investing tips from her book, "Money Rules."
15 Investing Tips
1. "If you can't explain it, don't buy it."
2. "The secret to good investing is not talent or timing, it's temperament." The fact is, human psychology works against the principles of good investing. To be a good investor, you must be able to ignore the short-term variation in the markets; to continue buying despite dim prospectives; and to acknowledge that you cannot predict where the markets will go day-to-day, week-to-week or month-to-month. If you can acknowledge this, and get help when necessary, you will be fine.
3. "Keep your hands off of your retirement funds, PERIOD." Withdrawing money from your retirement account will cost you money. You will not only have to pay income taxes, but you will also have to pay a penalty fee. By withdrawing money early, you're preventing it from growing. All around, you will be losing money by pulling from your retirement.
4. "Ask yourself: What is the worse thing that could happen?" Always ask yourself this before buying any investment. Could you lose all of your money? Or, could you be stuck without money if and when you need it? Knowing the downside is just as important as knowing the upside.
5. "Rebalance every six months, or buy investments where you don't have to." Rebalancing is the process of buying or selling to keep up with changes in the market. Rebalancing is very important. By not rebalancing, you may put yourself in a position with too much or too little risk. Neither of those is a good thing.
6. "Nobody cares about your money as much as you do."
7. "Diversify." No one knows exactly where the market is heading. Investing in a variety of stocks, bonds, and other assets - like real estate, cash and precious metals - is diversification. It's the same as "not putting all of your eggs in one basket." Diversification provides some security in case one of your investments doesn't work out.
8. "Boring is better." Index Funds and Exchange Traded Funds (ETFs) are not as exciting as Individual stocks and managed mutual funds. Index funds and ETFs are picked by a computer. There's no real excitement in the process. But, they are cheaper to buy, cheaper to own, and cheaper on taxes.
9. "The bottom line is the only line that matters." When you buy a car for $15,000, the amount you end up paying is often not $15,000. There is a title fee, registration fee, insurance, and interest paid over time. Likewise with investments, there are other costs associated with the purchase. Consider how much you are really paying for an investment before buying.
10. "If you can't figure out what an investment is costing you, you are overpaying."
11. "Bad news is often followed by worse news." Where there is smoke, there may be fire. Don't become paralyzed or overly optimistic in an investment.
12. "Hope is not an investment strategy."
13. "Be greedy when others are fearful and fearful when others are greedy." Warren Buffet gave this investing advice.
14. "Big numbers make smart people make stupid decisions." Big numbers often lead people to make decisions they otherwise wouldn't. Be careful to avoid temptation. Practice discipline instead.
15. "No one really knows where the market is going."
I hope these investing tips are helpful! For more information on the basics of investing, and the different types of investments, check out the investing video.