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Updated: Jul 2, 2021

Investing should be easy – just buy low and sell high – but most of us have trouble following that simple advice. There are principles and strategies that may enable you to put together an investment portfolio that reflects your risk tolerance, time horizon, and goals. Understanding these principles and strategies can help you avoid some of the pitfalls that snare some investors.

5 Smart Investing Principles

There is no shortage of self-help material available for people looking to boost their investing knowledge. Between television programs, magazines, and other information sources, you can read about “The Best” this and “The Most Important” that. It can be easy to get confused, especially when you get conflicting ideas.

Understanding a few key investment principles can be a great place to start. It can give you a better framework to understand the information as you take in the ideas. It can also provide context for evaluating the concepts and strategies suggested.

This presentation goes through five smart investing principles. These are key concepts that could help you understand what it takes to create an investment portfolio that’s designed to pursue your investment goals.

There are five smart investing principles that are helpful to understand if you want to potentially break the cycle of buying high and selling low. Are there other investing principles? Absolutely. But for the purposes of our discussion today, we’re going to focus on the five that we believe are critical to understand.

First, estimate your time horizon. Is your investment horizon three years away or 30 years?

Second, know your risk profile. Can you tolerate big swings in the value of your investments, or do you prefer less volatility? Knowing your risk profile is an important step as you consider various types of investments.

Third, diversify, diversify, diversify. This one’s so important we listed it three times.

Fourth, consider the effects of taxes and inflation.

And finally, get started now. Take the initiative and get going. If you learn nothing else today, please understand the importance of getting started now. When it comes to pursuing investment goals, the more time you have the better.

Estimate Time Horizon

Let’s take a look at our first principle, estimating your time horizon.