There are many different levels of investing. You might have tried your hand at the stock market, or you might have an IRA or a 401k. Then there are the professional investors who make a living investing their money or make a living investing other people’s money.
Obviously, the professional investors know some investing tips and tricks that we common folks don’t. Whether it be some stock tips they’re hiding or a secret way to grow their money more, they’ve certainly got something up their sleeves!
We want to uncover 4 tips professional investors use to enrich themselves and their clients. Now, we were hoping you could keep one thing in mind: tips and tricks are no shortcuts or ways to get rich quickly. Unless you get fortunate or are already wealthy, investing is a long-term game.
1. Compound Interest
Making your money “work for you” is one of the best tips that both professional investors and other wealthy people will give to you. In addition to creating passive income streams, one way they suggest making your money work for you is by taking advantage of compound interest.
Compound interest is when the interest from your investment or savings gets reinvested back in with the original principal balance. By investing in mediums that take advantage of compound interest, your money should grow exponentially over time. A $1000 investment for a newborn baby at 10% will grow to be over $300,000 by the time your newborn hits retirement age. Play around with the Compound Interest Calculator to see for yourself!
Money market accounts, CDs, high-yield savings, and checkings accounts — these are all investment mediums where interest is compounded annually that just about anybody can get online or walk into their local bank and get started. Stocks, certain types of bonds, treasury securities, and index funds are other mediums where interest is compounded.
2. Invest In The Company, Not Just Stock Symbols
It would be best to remember that you now own a piece of this company whenever you buy stock in a company. It’s easy to watch CNBC and pick out some ticker symbols at the bottom of the screen that seems to be doing well, or listen to one of the pundits shill for the “next fast-growing stock.” Keep in mind that the guys on TV are getting paid a decent amount of money to be there. If they knew about the next big thing, they would probably take advantage of it themselves and not share it with the world.
Please do your own due diligence and learn about what this company does, how they operate, what their employees say about them, how they compare against their competition and figure out what their long-term goals look like.
3. Emotions Have No Place In The World Of Investing
Successful investing has nothing to do with how smart you are. It has everything to do with how well you can control your emotions. Warren Buffet himself said one of the best qualities an investor can have is the temperament to control urges during market ups and downs.
One of the most common ways investors hurt or completely ruin their portfolio is by emotion-based trading. In fact, many market downswings are caused by rumors and speculation rather than the logic of actual analysis of the company or commodity.
“Should I sell now and cut my losses?” “Shouldn’t I just get out now since the stock might drop next week?” “Should I just hold on to my stock despite the downswing because it might rebound and go back up?” These are the worries of a day trader. 99% of the people reading this probably should not be day trading.
Your mind will be a mess of thoughts if you sit there and let emotions and insecurity get in the way like that. Make smart, analytics decisions. That’s what successful investors do when playing in the stock market.
4. Keep Away From Leverage And Margin Accounts
Leveraged funds are when a bank or brokerage lets you use some of their money to invest. Investing with their money is usually done so with a margin account. They usually cover about 50% of the deal. So if you wanted to make a $5,000 trade, they would cover $2,500 of it, and you would put up the other $2,500.
You’re investing to make money, and it’s that simple. Using leveraged funds or a margin account is a great way to owe somebody else a lot of money. It’s one thing if you tried a somewhat risky investment and lost some of your money. It’s another thing to lose your money AND go into debt.
Let’s say that in your $5,000 deal above, the shares were $100 each, and your margin account covered 50%. If the stock price dropped 50% down to $50 per share, you have already completely lost your entire investment. You would now have to pay interest on the money that you borrowed.
Investing like professional investors is more than just getting stock tips on buying; it’s learning an entirely new process. It’s a new way of thinking. Remember, the big guys are getting paid, and nobody out there is psychic unless they’re committing insider trading. Play the market analytically, not emotionally, and you should be fine in the long run!