Here are the top five tips I would give to a younger person (William probably.)
- Diversification. Make sure that you do not “put all your eggs in one basket.” If you invest all your money in one company, and that company goes bankrupt, you have just lost all that money you invested. This applies more broadly as well. If you have only stocks or real estate, even if that money is widely spread among different companies, if the market goes down for that particular industry, your investment loses value.
- Dollar cost averaging. Another good way to lower risk. If you are concerned a certain company might drop (they all can,) you can invest a certain amount of money every month. That way, if the company goes down, you still lose money, but not nearly as much.
- Don’t invest on margin. This means you use some of your money to invest in a company, and then loan out the rest. Unless you can see the future and know the company’s value will skyrocket, this is a good way to lose money.
- Don’t invest all your money in assets! A combination of 1 and 3. Leave some of your money as cash in your pocket or home, or in a savings account. This way, if you have a personal emergency, you don’t have to sell your assets and incur the associated fees.
- Be careful about fees. Constantly buying and selling shares can quickly lose your money because of fees, even if you are selling the shares at a higher price than you bought them for. Mutual funds can also cut down on the return, despite their automatic management and diversification.