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5 Best Investing Tips to Make More Money

Whether you're an investing beginner, or just want to maximize your success, these 5 fundamental investing tips from Money Girl can help you make more money.

By
Laura Adams, MBA,
February 11, 2015
Episode #389

Page 1 of 3

5 Best Investing Tips to Make More MoneyDid you know that a third of Americans have no savings for retirement? And, believe it or not, 21% of adults actually think that winning the lottery is the best way to retire!

No matter if you’re a newbie investor or have been at it for decades, it’s important to understand the fundamentals. In this episode I’ll review the best investing tips to make more money, so you can achieve your long-term financial goals.

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5 Best Investing Tips to Make More Money

Good investing never includes a get-rich-quick scheme or mindset. Nor does it involve taking risks that keeps you awake at night. If you're an investing beginner, or anyone who wants to succeed, use these 5 investing tips to make more money over the long-term:

Investing Tip #1: Start Early

Saving and investing early means that you put the power of compounding interest to work for you. Albert Einstein called compound interest “the eighth wonder of the world.”  

Compare these 2 investors, John and Sally, who set aside the same amount each month and get the same annual return:

John

  • Begins investing at age 20 and stops at age 60 
  • Invests $100 a month 
  • Gets an average return of 8.5% 
  • Ends up with $406,825

Sally

  • Begins investing at age 30 and stops at age 60 
  • Invests $100 a month 
  • Gets an average return of 8.5% 
  • Ends up with $166,339

Because John got a 10-year head start, he has  $240,000 more to spend in retirement than Sally! But the difference in the amount John contributed was only $12,000 ($100 x 12 months x 10 years.)

So never forget to start investing as early as possible!

Investing Tip #2: Don't Try to Beat the Market

While it might sound boring, you should aim to be an average investor. That’s because it’s better to "be" the market, rather than try and beat it.

When you try to match the performance of a financial market - such as the S&P 500 or NASDAQ - it's known as passive management, or indexing. On the other hand, active management means that you try to beat a market index.

Problem is, over just about any historical 5-year period, passive index funds beat actively managed funds. That's because it's impossible to consistently beat the market without taking on additional risk over the long term. 

For example, only 20% to 35% of actively managed funds beat the benchmark for their category over the past 5 years. That means most funds can't beat the market. In fact, over the last 15 years, 46% of active funds closed due to poor performance, and 7% of them failed every year.

What does that mean? Well, professional fund managers are not smarter than the market, and neither are you. Plus, active funds charge more, which I'll cover in the next tip. 

See also: Money Girl's Smart Moves to Grow Rich - Download 2 Free Chapters! 

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