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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
5-minute read
Episode #389

Investing Tip #3: Choose Low-Cost Funds 

Different funds charge different fees, known as the expense ratio. For instance, an expense ratio of 2% per year means that each year, 2% of the fund's total assets will be used to pay for expenses, such as management, advertising, and administrative costs. 

Actively managed funds have an average expense ratio that's about 1% higher than passive funds. One percent may not sound like much, but when you strip it off the average historical return of 8.5%, it becomes much more meaningful.

For instance, if you invest $100,000 over 30 years with an average annual growth of 8.5%, paying for those higher fees will cost approximately $280,000. In fact, low fund fees have been pegged as one of the best predictors of future returns by Morningstar, a leading independent investment research firm.

So, the bottom line is that choosing low-cost index funds will make you more money over time because they give you average returns, but at a much lower cost.

Investing Tip #4: Use a Buy and Hold Strategy

Even though the historical average market return has been 8.5%, the average investor only earns about 5%. Why? Well, unfortunately we're terrible at investing. 

We chase returns, react to fear, and buy into media hype. When we invest emotionally, we end up buying high and selling low, which is the exact opposite of how you make money.

We chase returns, react to fear, and buy into media hype. When we invest emotionally, we end up buying high and selling low, which is the exact opposite of how you make money.

Yes, in the short term investment returns may vary. But over the long term, market returns always revert to the average

Investors think their choices must be right if other people are doing the same thing. The media says buy, so most investors get in the market. And when everyone else is in a panic and selling, that’s what most people do. 

In other words, emotional investing is a losing strategy. So stick to a long-term, buy and hold investment strategy.

See Also: Smart Moves to Start Investing on Any Income

Investing Tip #5: Stay Diversified

Diversifying your investments means that you spread them out over a variety of industry sectors and asset classes, such as stocks, bonds, and cash. That reduces the risk that any specific investment could fail and lower the return of your overall portfolio.  

Diversifying doesn't increase investment returns all by itself, but it does allow you to reduce investment risk, without lowering your return. The idea is that you limit losses without sacrificing gains. So invest in a mix of assets that suit your individual goals and investment time horizon.

Following these 5 fundamental investment tips by diversifying, maintaining a buy and hold strategy, choosing low-cost funds, being an average investor, and starting early is the best way to set yourself up for investment success. 

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About the Author

Laura Adams, MBA

Laura Adams received an MBA from the University of Florida. She's an award-winning personal finance author, speaker, and consumer advocate who is a frequent, trusted source for the national media. Money-Smart Solopreneur: A Personal Finance System for Freelancers, Entrepreneurs, and Side-Hustlersbook is her newest title. Laura's previous book, Debt-Free Blueprint: How to Get Out of Debt and Build a Financial Life You Love, was an Amazon #1 New Release. Do you have a money question? Call the Money Girl listener line at 302-364-0308. Your question could be featured on the show.