Investing for Dummies: The Essentials to Getting Started

A major attribute of having a healthy financial picture in the long term is both saving for the future and investing in ways that work out well for you. You need to put away as many dollars as you can, but you also need to make sure that you put them in places where they work hard for you, earning and attracting even more dollars. The following paragraphs have a number of rules you should follow to maximize this part of your financial health.

The Best Investing for Dummies Strategies

The Rule of 72

One of the most basic rules of thumb concerning investing has to do with what’s called “compounding.” This is when your money starts making money, which then starts making more money, and so forth. It’s really powerful stuff, but it doesn’t happen overnight. In order to get an idea of how long it will take for your money to double through compounding, you can use what’s called the “Rule of 72.”

Investing for Dummies: The Essentials to Getting Started

Here’s how it works: take the number 72 and divide it by the interest rate you’re earning on your investment. For example, if you’re earning a 10% return on your investment, it will take approximately 7.2 years (72 divided by 10) for your money to double. Of course, this is just a rule of thumb and not an exact science, but it’s a helpful way to think about compounding nonetheless.

The Power of Dollar-Cost Averaging

Another helpful investing strategy is something called “dollar-cost averaging,” which is basically a fancy way of saying that you should invest a fixed sum of cash into a particular asset on a regular basis (monthly or quarterly, for example). By doing this, you’ll effectively smooth out the ups and downs of the market over time, which means that you’ll be less likely to sell when prices are down (a big no-no).

Dollar-cost averaging also has the added benefit of forcing you to buy more units when prices are low and fewer units when prices are high, which is generally a good thing. Of course, there’s no guarantee that this strategy will always work out in your favor (nothing in investing is ever guaranteed), but it’s definitely worth considering if you’re looking for a way to reduce your risk.

Investing for Dummies is Simple With These Tips

Investing may seem like a daunting task, but it doesn’t have to be. By following some simple rules and strategies—like the Rule of 72 and dollar-cost averaging—you can help ensure that your investments are working hard for you. So what are you waiting for? Get started today!

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