How do you know when you’re investing your money like a grown-up and not like a kid? In other words, you know you’re investing like a grown-up when you treat investing like what it is: work. These are the five investment moves that prove you’re finally a grown-up.
The original article, written by Dan Rafter, is presented here by munKNEE.com – “ The internet’s most unique site for financial articles! (Here’s why)” – in an edited ([ ]) and revised (…) format to provide a fast & easy read. Visit our Facebook page for all the latest – and best -financial articles!
1. You’re not afraid to invest in stocks
It’s true that stocks come with more risk but investing in stocks comes with the potential for much higher rewards, too. If you ignore stocks and only invest in safe assets such as bonds, you run the risk of losing significant profits over time.
According to TIME Money, since 1926, portfolios made up mostly of stocks have never had losses that last 20 years or more. These same portfolios reported average gains of more than 10.8% annually, while portfolios made up of bonds averaged returns of just 4% a year.
If you’re investing like a grown-up, you won’t run away from the high-reward potential of stocks. Instead, you’ll make sure to include stocks as part of your overall investment portfolio.
2. You do your research
Your friend comes to you with a hot tip, claiming that you absolutely must invest in this new company. They tell you you’ll be getting in on the ground floor of something big. An immature investor might jump at that opportunity, but a grown-up will do the research before acting on the tip.
- reading company reports and listening to conference calls,
- studying the product or service this “hot” company is offering,
- seeking out the advice of true financial experts
and, yes, all of that takes time and work but to invest like a grown-up means you’re willing to put in that effort before investing your dollars.
3. You don’t sell too quickly
It’s tempting to sell a stock when it’s either soaring in value or falling but reacting too quickly to changes in value, whether positive or negative, is the sign of an immature investor. The grown-up investor realizes that investing sometimes requires patience.
Consider a stock that rises in value after you buy it. Sure, if you sell it, you’ll make a quick profit but what if you held on to the stock longer? If the stock is a solid one, it might continue to increase in value over time. If you sell too early, you might miss out on plenty of future profit.
You also don’t want to hold on to a losing investment for too long, but it’s still possible to sell too quickly. If you’re patient, and if you’ve done your research on the company before investing, it might make sense to hold onto the stock until its value begins to rebound. If you sell as soon as the stock loses value, you’re certain to take a loss.
4. You’re not hunting for bargains
You don’t want to overpay for stocks, but sometimes investing in a quality company takes a significant amount of money. Grown-up investors know that it’s better to invest in a strong company while paying a bit more than it is to get a bargain price for a company that won’t perform as well.
The truth is, if you want to invest in top companies, you’ll have to spend more to do so. Don’t let your quest for bargain prices trick you into investing in underwhelming companies.
5. You don’t cash out your 401(k) when you change jobs
When you change jobs, you’ll usually have to figure out what to do with the 401(k) plan in which you’ve been investing. The immature move? Cashing it out for a quick buck. The grown-up move? Rolling that 401(k) over into an IRA.
If you cash out your 401(k), you’ll lose a good portion of the money you saved because of taxes and, depending on your age, penalties for withdrawing the cash too early.
By rolling over the funds, you won’t suffer any penalties or tax hits, and your money will continue to grow over the years.
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