1. Money

Video:7 Keys to Successful Investing

with Linda P. Jones

Having a solid investment strategy can give you an advantage in the stock market. Learn seven keys to successful investing with this video.See Transcript

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Transcript:7 Keys to Successful Investing

Hello, I’m Wealth Mentor Linda P. Jones of LiveWealthyAndSmart.com, here today on behalf of About.com to share with you my 7 keys to successful investing.

Invest During the Right Point in the Cycle

The first key to successful investing is to understand that all wealth moves in cycles. Just like in nature we have the four seasons that move in cycles, so too with investing do we have cycles. And being in the right cycle at the right time means that you’ll build your wealth more quickly.

The second key to successful investing is to determine whether you’re in the financial cycle or the commodities cycle. Each cycle runs about 15-20 years and in 2001, the financial cycle ended and the commodities cycle began.

The third key to successful investing is when you’re looking at a cycle, to determine which sectors are performing best. For example, we’re now in the commodities cycle, which started in 2001, and precious metals have been performing the best, as the best sector in that commodities cycle. That will likely continue for a total of 15-20 years, beginning from 2001. So that is the best place that you have to build your wealth.

Choose the Investment Vehicle that Suits You

The fourth key to successful investing is to choose the investment vehicle that suits you best. For under $1000, you have 3 different choices that you can invest in.
  • First are mutual funds - they’re baskets of stocks that are managed by a professional. The advantage is you have diversification; the disadvantage is there can be high turnover and fees.
  • The second choice is to have a static basket of stocks called exchange-traded funds. They’re like index funds. That means that they have low fees and no turnover but they’re not professionally managed so you’re stuck with a static basket of companies.
  • And the third way to invest is to buy individual stocks. That gives you control over the stock selection, but it also means you have to have a large enough portfolio to buy enough stocks to be able to diversify well and reduce your risk.

Investments Should Be Kept for the Long Term

The fifth key to successful investing is to invest for the long term, to reduce volatility and risk of loss. The biggest mistake I see people make is when there’s volatility they try to jump out and protect themselves. Rather, they should have confidence that the cycle will continue and they can sit back and hold until we get nearer to the peak of the cycle and that’s what’s really going to maximize their wealth-building.

Evaluate Investment Trends

The sixth key to successful investing is to be a contrarian investor; when everyone is buying, you should be a seller and when everyone is selling you should be a buyer. Warren Buffett said it best: “you should be greedy when others are fearful, and fearful when others are greedy.”

Here’s the seventh and final key to successful investing: watch for the peak of the bubble. The peak of the bubble is when it’s the peak of that particular cycle that we’re in. And you’ll know that it’s the peak of the cycle by looking for 3 different things.
  • The first is you can have 40-100% appreciation in that investment, within the last 12 months before it peaks.
  • Secondly, if everyone you know, all your friends, relatives and neighbors are talking about how much money they’ve made in this investment, it’s likely very close to the peak.
  • And thirdly, when people are talking about quitting their job, and making a living by being a day-trader in internet stocks or by flipping houses in real estate, for example in the last two bubbles, you know that this next peak is very close and it’s time for you to sell and look to get into the next cycle.

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