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20 Smart Personal Investment tips

personal investmentsAs I mentioned in my last post, I attended a personal investment seminar  during the LA Financial planning day. I am interested in learning more about investments and scared about it at the same time. So I religiously took notes throughout the talk. Here are the 20 key steps to make smart personal investments.

  1. Understand the difference between saving and investing
      Saving is for smaller, near-term goals, such as the next family vacation, a car or a financial emergency. Investing is for larger, long-term goals—at least five years away — such as retirement or college. Savings are best kept in cash or money market accounts, basically low risk accounts. Investments on the other hand carry the risk of loss of principal but can provide higher returns.
  2. Put the rest of your financial house in order first
      Before investing, consider tackling several other household financial issues. Create a budget, or spending plan, in order to free up money for regular investing. Pay off expensive credit cards or other high-interest consumer debt that eat up valuable investment dollars. Build an emergency fund that includes three to six months of living expenses and buy the right kinds and amount of insurance to protect against a financial setback—otherwise, you may be forced to raid your investment accounts for cash at a time when the market is down or with costly tax consequences.
  3. Clarify your goals
      Smart investing means investing with a specific purpose— those life goals such as your desired retirement lifestyle or passing money on to heirs. Investing with purpose makes it easier to stick to your investment plan and to invest income you might otherwise spend.
  4. Don’t just grab for the highest return
      One of the most misunderstood aspects of investing is the belief that investing is all about seeking the highest possible returns. Personal investment is more about making informed, realistic investment decisions designed to accomplish your financial goals without taking unnecessary risks.
  5. Understand your own risk tolerance
      If some investments are going to keep you awake at night, no matter how good they are, they are not the right investments for you.
  6. Educate yourself about personal investments and investing
      Even if you work with a financial planner or other investment professionals, you need to have a solid understanding of how different types of investments work, their potential returns, their risks and how you can assemble them into a cohesive portfolio that’s right for your needs and goals. No one cares about your money more than you.
  7. Hold realistic market expectations
      Understand what “average” returns are. You might not see this average return every single year. Understanding averages will help you understand the fluctuations and keep going when there is a down market.
  8. Follow a detailed written plan
      Formally, this is called a personal investment policy statement. It’s a road map to keep you on course through good times and bad, to eliminate investment ideas that don’t fit your circumstances and to provide a way to monitor the actual performance of your investments.
  9. Allocate investments according to personal goals and needs
      The sooner you’ll need the funds, usually the more conservative your investments should be.
  10. Diversify your investments
      Very important investment guideline – don’t put all your eggs in one basket. When stocks are performing badly it is time for bonds and vice versa. So diversify.
  11. Don’t overload on company stock
      Very similar to #10. Don’t just rely on one company. If it is the company you work for, you not only have the chance of losing your job when the company does badly but also all your personal investments as well. Diversify.
  12. Don’t chase ‘hot’ performance
      Investing is unpredictable, what is “hot” today might be down in the dumps tomorrow. Don’t chase the stock of the day. In all probability if you heard about the hot stock in the TV or paper, it might already be at it’s peak price point.
  13. Don’t ignore ‘cool’ performance
      This is the opposite of chasing hot performance. Take a note of what is surviving the down market as well. The best way to handle #12 and #13 is to invest in a diversified portfolio and rebalance it according to your goals and timelines.
  14. Stay in the market
      One of the big mistakes people do is to invest in stocks when the market is doing well and pull out during a bear market. It is buying high selling low. If you understand your risk and invest based on when you need the money, you can sleep well at night and stay in the market. It will average out.
  15. Start investing early
      Power of compounding is one of the basic personal finance principles that works miracles. The earlier you start, the more time for the money to grow and work for you.
  16. Invest regularly and automatically
      You can’t predict the market. The only way to win is investing regularly and automatically so that you can take advantage of dollar cost averaging.
  17. Pay attention to investment expenses
      You can’t control the market but you can control the expenses. Low cost index funds are most of the time the best personal investment for the little guys.
  18. Don’t let taxes dictate
      Investing in a tax sheltered account is the best way to save. But don’t let the tax dictate your whole personal investment strategy. For example, if a stock is doing very well, you shouldn’t refrain from selling it “only” because you are not a fan of the capital gain tax. If you wait, the stock might tumble. Think about taxes, but don’t let it control your investment decisions.
  19. Rebalance your portfolio
      Unless you are invested in one of the target retirement funds that does the rebalancing for you, it is recommended that you rebalance your portfolio at least once a year. The asset mix will depend on you needs, age and period of investing.
  20. Monitor and revise your personal investment plan
      As with any financial plan, you should revisit your personal investment plan at least once a year. You will want to see if you are actually following the guidelines you outlined in that plan and also to revise the personal investment plan if your life situation or your risk level has changed.

There it is. I am trying to learn as much as I can about investing, so you might see more basic investment articles here as I learn the ropes. For the more experienced investors out there, what is your favorite personal investment tip? Also which book will you recommend for a novice like me?

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{ 9 comments… read them below or add one }

The Biz of Life

Knowing your own risk tolerance is difficult. In up markets, everyone has a lot of risk tolerance because everything is going up. In down markets, risk tolerance evaporates and people head for the exits at the worst possible time. I would also bet that investing in “cool” markets has significantly outperformed investing in “hot” markets over the long-term.


Everyday Tips

There are so many great tips in this post. Investing early is so important. They are all important actually. If only everyone could adhere to even 25 percent of these tips, the country would be in a much better economic state.

I agree with Biz- investing in cool I am sure has paid off more than investing in hot! Things go in cycles, so I would rather invest in the cold and watch it heat up! (unless it is cold because it is a dead industry.)



@Biz and @Kris Do you guys recommend any particular books for investing basics. I guess the first thing I have to do is learn how to read the morning star ratings and other mutual find performance ratings…


The Biz of Life

Even Morningstar admits the best indicator of future performance is low cost. Head down to your local library and read anything by John Bogle, William Bernstein, or Burton Malkiel for the passive investing point of view. For active investing, Peter Lynch is always good to start with as well as Ben Graham and John Neff, and anything on Warren Buffet or John Templeton.


The Biz of Life

Newspapers would be an example of a cool business segment where a recovery seems very unlikely (commonly called a “value trap”) with all the free news on the internet and the indefatigable community of bloggers.


James Fowlkes

Step away from the Morningstar ratings… They are bunk anyway. BoL just said it, look for index funds and ETFs with low expenses. 80-90% of active fund managers don’t even beat their benchmarks and charge double to quadruple the fees of passive index funds. Vanguard are my favorite.



These are all great tips, and it’s a comprehensive list. One additional tip is to always keep in mind that we are each responsible for ourselves, and to take care of ourselves as we get older. Don’t count on handouts, don’t count on kids. If that mindset is present, I think it helps many of the proper steps fall into place.


Wendy Mihm

These are all solid tips that have stood the test of time. I especially liked how you differentiate between saving and investing goals at the 5 year mark. I’m the editor at the website FinancialRx and just finished writing the content for our free weekly subscriptions and one of the emails covers that same topic. I also cut off saving and investing goals at the 5-year mark, so it was nice to see another Finance writer making the same distinction.

Great post — I included a link to it in my weekly email and bookmarked it as well, so I’ll be back.



Great Post very helpful
Im nearly getting started do you know of any low cost index funds that work, that i could invest in?


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