4 Things You Can Do to Practice Smart Investing


While no investor can
be considered the perfect investor, many have
proven themselves to be the smart ones. Different investors use different
strategies for specific reasons. Still, some investment advice can be helpful
to every type of investor, and here are a few of them.

Understand that Some
Losing Investments Should Be Let GoLosses are a normal
part of investing, whether you’re doing it short-term or long-term.

Buy-and-hold investors
sometimes incur losses that may be unrecoverable. And even if they managed to
return to the green territory in the future, the cost of waiting for that
bounce back may not be worth their time and resources.

Smart investors
understand that it’s better to let go of some losing investments than continue
holding on to them in hopes that they will recuperate losses.

While dealing with a
capital loss is not what you initially planned to do, there are still a few
instances when having losses can help you. For example, you can use your
capital loss to reduce any capital gains tax you owe.

Invest in Index Funds

Index funds are created
to reflect the performance of a certain market index. This type of investment
vehicle makes for an excellent choice as it can quickly diversify your
portfolio since it is a fund holding stocks of a range of companies. By
investing in one, you’re immediately betting on different businesses.

Take index funds that
follow the S&P 500 index as an example. Putting your money into such a fund
provides you access to hundreds of well-known companies in the market, and it
only requires you to make one investment.

Remember to Utilize

The earlier you learn
about the benefit of compound returns in investing, the more profit the money from
your investments can generate on itself. You just need enough time, and
compounding will take care of the rest of the work on your behalf.

Let’s say you invested
$10,000 in a fund with an annual return rate of 10%. If you let compounding
work on it for two decades, your money would grow to over $67,000. If you let
it compound for three decades, that $10,000 would be worth around $174,000.

That is why time is
crucial to compounding. The longer you keep the money invested and allow
compounding to work its magic, the higher the value can reach over the long
term. The total amount climbs every year as the money earning the return

Learn About the Fees

While some brokerages
offer free trading services, you still
need to know the fees associated with the investment product or service used. Mutual
funds and exchange-traded funds (ETFs), for example, charge investors an
expense ratio annually for portfolio management and other related services.

Expense ratios are
usually charged as a percentage of the investment’s overall amount. So, a 20%
expense ratio means you must make a yearly payment of $20 for every $1,000 you
invest in the fund.

The differences in
percentages may not be a lot between funds, but they can accumulate over time
and reduce your gains.

This article was written by ForexLive at www.forexlive.com.

Go to Forexlive

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