Everything you need to know about investing in 500 words

It’s a tall order: distill everything you, a seeking investor, need to know in 500 words or less. While all of these ideas won’t apply to you, share it with your kids, grandkids or others. You might change their lives for the better.

START YOUNG

You’ve heard it a million times, but it’s true. Here’s an example: two people invest the same amount over time ($240,000). One starts 20 years sooner and invests $500 per month. The other starts later with $1,000 per month. With a seven percent return the early bird accumulates, over forty years, $1.3 million! The late starter gets $521,000.

INVEST REGULARLY

Investors call the above example dollar-cost averaging. Which is just a fancy way of saying investing a fixed amount regularly. If you’re younger you can do this through a work plan. If you’re retired you can DCA with your investment income.

HAVE A PLAN

Create a written plan that includes goals, asset tracking, estate planning and your investment philosophy. Update it consistently and use free resources online to build it.

BE TAX SMART

Even a billionaire can contribute to an Individual Retirement Account (IRA). You should, too. Or use a company plan or self-employed plan. These tax-advantaged accounts should be your first investing priority. All other things being equal, tax-deferred is better than after-tax investing.

When these vehicles are maxed out then look at other accounts. Or consider tax-free municipal bonds or real estate.

ALLOCATE UNEMOTIONALLY

The easiest way to allocate your money, whether done professionally or by yourself, is to use index funds. You may not use them 100 percent of the time but try to include them. They’re low-cost and can be good long-term investments.

Use other funds when needed. For example, you can buy exchange-traded, closed-end or open-ended funds. Some may be indexed and others won’t be. They take the guesswork out of investing and trying to pick individual stocks or bonds.

PRODUCE INCOME

On top of a smart allocation, you want to get your portfolio producing sustainable high income. Why settle for one or two percent annual yields when you can get five percent or better? This added income lowers portfolio volatility, creates money to reinvest, even during bad markets, and enhances your total return.

GET ADVICE…MAYBE

Some investors are complete do-it-yourselfers. That’s great. Some aren’t and need trustworthy advice. Where do you get that? Seek out referrals from friends, family or trusted attorneys and CPAs. Know what types of advisors are out there and the way they charge fees. Ask questions about those fees, required time in the investments, and their qualifications and licensing.

TRUST YOUR INSTINCTS, BUT DON’T TRUST THEM

If you’re meeting with a potential advisor and you get a good or bad “gut feeling” listen to that! If your getting a feeling to follow the hottest trend, or recent best-performer or other “hot tip” then don’t trust your instincts.