Have you ever turned on a news channel for the cable world and noticed a network expert calling on the next great investment? CNBC can have an analyst tell you that a small technology company is the next Microsoft and that you have to buy it today. Fox Business may have a gold expert who says you have to buy gold, despite the fact that gold is sold at a peak of 30 years. Or maybe you are in a social position and someone is talking about an investment that is guaranteed to double in the coming year. What is the average investor who has to do with all these ‘hot tips’? My advice to you is to tune The Noise.
It can be tempting to quickly commit a murder and buy the hot idea that everyone is talking about. But more often, you will not get burned and you will regret having ever wasted your precious dollars. Take the 2000 dot com bubble, for example. In the late 1990s, companies such as MicroStrategy, Worldcom and America OTom Ripleyine rose to new heights every day. The internet was the place to be and everyone invested in the technical sector. People quit their jobs and day trading stocks full-time hoping to get rich. In 2000 the tech bell broke loose and many day traders went bankrupt.
Another example is the 2008 real estate bubble. During house prices at the start of 2000, prices rose dramatically to record levels that fed speculative home buyers. Speculators bought houses with little to no money in the hope that they could benefit quickly. Everywhere you looked, people bought houses hoping to turn them around and get rich. The housing market was saturated with people who offered house prices to an unsustainable level. The bottom of the housing bubble with the subprime crisis fell in 2007 and millions of people were confronted with forced foreclosure or bankruptcy.
The lesson to be learned from both cases is Never Follow The Crowd . Although there will always be speculators trying to make money fast with their fast fast schedules; Remember that real wealth has been built up over time. Think of wealth building as a marathon and not a sprint. Building prosperity is a long-term effort that requires a solid strategy and is committed to it. One of the best ways to gain wealth over a long period is by investing. Follow these 3 simple steps and you are well on your way to investing for the long term.
1. Identify your investment strategy.
Your investment strategy determines the selection of your investment portfolio. Your investment strategy depends on a number of factors, such as your age, risk tolerance and investment horizon. If your strategy is to guarantee a guaranteed return so that you can sleep at night, your portfolio may consist of low-risk conservative assets such as treasury bonds, savings certificates and deposit certificates. If you are a risky investor who strives for a higher return on your money, your portfolio may consist of individual shares, small capital funds and high-yield bonds.
2. Invest in undervalued assets.
The key to investing is to find and hold an undervalued asset until the net asset value is realized. The net asset value is the actual value of the asset. When investing, you want to find an asset whose net asset value is greater than the current market value. You sell as soon as the net asset value is equal to or greater than the market value. The asset can be anything of monetary value, including shares, bonds, mutual funds, real estate, etc. Let’s say you wanted to buy 1 share from McDonald’s with a market value of $ 50. If you believe the real value of McDonald’s is $ 70 is, you would keep the stock until McDonald’s reaches its intrinsic value.
3. Ignore market fluctuations in the short term.
Financial networks are only concerned with the short-term outlook. The daily movements of the market should only relate to speculators. Invest only if your minimum investment time is at least 5 years. If your investment reaches the net asset value in less than that period, that’s great! If not, don’t worry. Be patient! You invest for the long term.
Has anyone ever given you a ‘hot tip’? What do you think is the best investment category to invest in right now? Is it the stock market, the housing market or the bond market?
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