If you're new to investing, you might think that success can happen overnight. The truth is several factors contribute to your success — one of which is time.
Here are some other dos and don'ts to help you get started.
It can be tempting to want to replicate the success of real and imaginary characters like Roaring Kitty (the internet trader who hit it big on GameStop) or Gordon Gecko (the fictional Wall Street executive who said greed is good) yourself. But remember, luck was probably on their side. And more often than not, for every lucky investor you hear about, hundreds or thousands (or more) have lost money trying to get rich quickly.
So instead, you may want to focus on setting realistic goals. List out all your priorities and aspirations in your life. You'll probably find that "get rich quick" isn't actually what you're dreaming of. Instead, you'll have specific outcomes you want to achieve. Some common financial goals include saving for retirement, starting an emergency fund, saving for a child's college education, and buying a home.
Being as specific as possible with your goals will help you develop a course of action with clear-cut steps and measurable milestones. Otherwise, you're just chasing a moving target.
Do you have a friend or relative who brings a stock tip to Thanksgiving dinner? "It can't miss," they insist, or, "I'm on a hot streak," they say. After some initial probing, you realize that your loved one picked a speculative asset and didn't do much research. These types of hunches rarely pan out and aren't considered a true investment strategy. And if anything, they can result in steep losses.
Instead, consider choosing an investment strategy backed by experience and research. It's easy with Acorns. We'll recommend an expert-built, diversified portfolio based on your goals and circumstances. For example, if you're early in your investing career and have several decades ahead of you for your portfolio to potentially grow, your portfolio may skew towards more stock-based investments than bonds. On the other hand, someone approaching retirement may be parked in a more conservative allocation. Acorns does this automatically for you, so no more buying and selling on hunches.
One critical aspect of investing is the tradeoff between risk and reward. When the market is booming, it may be easy to forget that there are inherent risks to investing, and that the economy goes through regular cycles of growth and contraction.
Before you take on too much risk, think about your tolerance, or how much risk you are willing to take to achieve your goals as well as how much you are ready to lose at any given moment. Determining your risk tolerance requires some introspection. Ask yourself a hypothetical question: if the market drops 20%, what would I do? Your answer will help inform how you or a service like Acorns constructs your portfolio.
By diversifying your investments, you're setting your portfolio up to have a better chance of weathering market volatility if one type of asset has a downturn, while maintaining potential growth in another.
But just owning a lot of assets doesn't mean your portfolio is diversified. Instead, the goal of diversification is to mix it up. In other words, don't just own a lot of assets — own a lot of different types of assets.
That way, you're not relying on the performance of just one thing. When one type of asset goes down, another could go up. And as a result, your portfolio generally has less volatility.
Multiply this example across the hundreds or even thousands of stocks or bonds that can be found in exchange-traded funds (ETFs) — like those found in your Acorns portfolio — and you've got diversification.
Every investor's dream is to buy low and sell high. In practice, though, this rarely pans out as expected. Instead, it's easy to wind up buying when the market hits all-time highs and selling when the market hits lows. And when the market begins to recover, it can be common for investors to jump back in after it's too late — because who knows when it's actually recovering? It's more likely than not just a guessing game.
In other words, trying to guess the best times to invest, or "timing the market," can actually mean missed opportunities to grow your money.
So what should you consider doing instead? Stay patient! Invest more when you can, or set a regular schedule of when and how much you want to invest (like with a Recurring Investment). And if possible, focus on selling only after you've reached your goals.
No one can predict the future, but when you try, you could wind up doing more harm to your portfolio than good.
The views expressed in the articles above are generalized and may not be appropriate for all investors. The information contained in this article should not be construed as, and may not be used in connection with, an offer to sell, or a solicitation of an offer to buy or hold, an interest in any security or investment product. There is no guarantee that past performance will recur or result in a positive outcome. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions. No level of diversification or asset allocation can ensure profits or guarantee against losses.