I have a pretty special relationship with my grandfather.
Over the course of my life, he has been the one person I have idolized most. His ethics and mentality are things I’ve tried to emulate.
Even though he lives near Atlanta and I’m in South Florida, we manage to talk just about every week. We talk about sports, remember my grandmother, who passed away last year, as well as politics and current events.
During my time as an investigative journalist, he always took an interest in stories I was working on and revelations I uncovered.
When I started on my journey into financial writing, he held the same interests. He’s always asking me questions about the stock market and what I thought about one thing or another.
Now I’ve never given him specific financial advice, mainly because he hasn’t asked for things like stock picks. But he has asked about my thoughts around investing in general.
I don’t know what my grandfather’s portfolio looks like, or if he even invests at all. But I gave it a lot of thought when he asked me.
Of course, the last thing I want to do is give my grandfather bad advice. Just like I don’t want to give you bad advice.
So I came up with three tips that, if he wants to invest, he could follow as my rules of thumb.
I’m going to share those investment tips with you here because I think they are viable for any investor.
Investment Tip No. 1: Be Diverse
This is a tried and true piece of advice.
Whether you are investing $50, $500 or $50,000 in the stock market, it’s key to make sure our investments are spread out among different asset classes.
Of course, your portfolio should be a mixture of stocks, bonds and cash, but this goes a step further.
Your stock holdings should not be held in just sector.
The reason is that sectors behave differently at different times. Tech stocks may be up, but energy stocks are down — and vice-versa.
Diversity among different sectors doesn’t guarantee mitigation of losses, but it certainly helps.
Investment Tip No. 2: Know Your Risk Tolerance
It’s no secret that, in terms of the stock market, these are pretty volatile times.
But the market can move up and down in wild swings at any given time.
That’s why it’s important to know exactly how much you are willing to risk when investing.
It’s just like going to a casino. You should never go into it with money you aren’t willing to lose.
Investing in the stock market is no different. Don’t invest any more money in stocks or bonds than you are willing to wave goodbye to if things go south.
It makes the wins great, but takes away the sting of potential losses.
Investment Tip No. 3: Love What You Are Investing In
As my wife likes to say, “If you don’t love it, don’t buy it.”
While she is usually referring to clothes, electronics or other items, this is a philosophy you should also hold as an investor.
I recently talked to Banyan Hill Publishing Chartered Market Technician Chad Shoop about this very thing in our podcast, The Bull & The Bear. If you missed it, check out the video below this story to hear all of his thoughts.
The reasoning is because you will likely invest in a company for a while unless you are day trading.
If buy and hold is your strategy, it’s best that you have a strong interest in the company. That interest is going to force you to really look at fundamentals and follow the news on it. After all, you are putting your money into a company. If you don’t love it, why would you buy it and hold for months or even years at a time?
Plus, when that company’s stock nets you solid returns, it will be even sweeter because you love the company. Just don’t let that love get in the way of selling when the time is right.
Now, there are many other tips you can use to become a successful investor, but these are the first three, most basic tips that I told my grandfather.
I wouldn’t steer him wrong.
I certainly wouldn’t steer you wrong either.
