Get Started: First Steps Toward Great Investing

Posted on May 5, 2014 at 12:48 PM PDT by

Saving for retirement is hard, but we all know that it’s those first steps that matter most. Setting aside $100 a week, then $200, aiming for a quarterly goal, then an annual number.

That’s just “pay yourself first,” an age-old technique that works wonders by eliminating the will power problem. If money leaves your paycheck automatically, it’s not there to be spent. Problem solved.

Then, however, we face the next challenge, making that money grow. You need to invest. Otherwise, inflation surely will eat up the purchasing power of your money.


The math on that is simple. A solid investment return doubles your money every 10 years. Inflation cuts it in half every 20.

How can you get started toward a great, but simple, investment plan? By seeking a portfolio that will find that magic double with a minimum of risk.

Here’s how to do it:

1. Diversify

One of the most nerve-wracking aspects of investing is watching your stock picks rise and fall with the markets. Owning a small collection of stocks, even blue chips, can lead you to focusing heavily on whatever news pops up on your computer or TV that might affect those investments.

The truth is, you need stocks but you don’t need to pick them. Owning a broad selection of stocks, even the entire stock market through index funds, is plenty enough exposure to their growth and earning power. Plus, if you own thousands of stocks, the fortunes of one or another will be far less taxing on your mental state.

2. Rebalance

The way to make money in the markets is to buy low and sell high. That doesn’t mean, however, that market timing is good for your financial health.

The safer and simpler way to take gains is to own a well-designed portfolio and to sell off the excess when one or another asset classes outperforms (selling high) and use the cash to reinvest in the rest of your portfolio (buying low).

3. Compound

Is doubling your money enough to keep inflation at bay? Absolutely, once you realize the power of compounding. Every dollar you earn in appreciation and incoming dividends and interest is reinvested, thus growing the size of your total portfolio now and into the future.

The incoming money only adds to the ability of your portfolio to mushroom larger in time, doubling, then doubling again, then one more time. Inflation is quickly left in the dust.

Finally, it’s important to remember that every penny you spend on fees paid to active money managers and financial advisors is money that no longer grows on your behalf. Keep costs in line, always, with the long-term goal of growing your savings into wealth.