Successful Investing is A Process

5 secrets of successful investing

There is a huge financial services industry dedicated to helping you manage your money. But the real secrets of successful investing and wealth creation are so simple that you shouldn't be overwhelmed by all the choices being offered. Instead, start with one small principle:

The secret of financial success is to make your money work for you as hard as you work for it over time!

Once you understand the importance of that basic concept it's easy to get started with a small amount of money. But the success of this strategy is only revealed over time. And that leads to the first of the success secrets:

1. Put time on your side. Like gravity, time is a powerful force of nature. It can leverage your plan to grow wealth, even starting with a small amount of money. For example, if you invested $2,000 today on an individual retirement account (IRA) in a stock market index fund, reinvesting all dividends, based on historic average market returns -- in 30 years the account would be worth $45,000. That may not sound like a lot of money, but it leads us to the second secret.

2. Invest regularly. In the example above, it hardly seems worthwhile to wait so long for such a seemingly small return. But what if you invested that same $2,000 every year, for the next 30 years? The account would total nearly $400,000! (Now, do the math and figure the results if you invested $5,500 every year -- the amount currently allowed in an IRA annually for those under age 50!)

3. Don't try to "beat" the market. In 2014, according to Morningstar, 86 percent of mutual fund managers failed to beat their benchmark. Those are trained professionals who devote full time to picking stocks! I have nothing against stock trading for those who see it as sport. But for long-term wealth creation, you don't have to beat the market. Just being there is enough. Remember, since 1926, there has never been a 20-year period in which you would have lost money in a diversified portfolio of large-company American stocks, with dividends reinvested, even adjusted for inflation.

4. Exercise self-discipline. Remember your time horizon. If you are investing for the long run, then don't let short-term headlines scare you out of your investment plan. A market decline becomes an opportunity for your regular retirement plan contributions to buy more shares of the fund at lower prices -- the exact recipe for success. Even those closer to retirement need a portion of their funds invested for long-term growth to beat inflation.

5. Be optimistic! Surely, some have read this far shaking their heads in worry about our nation's problems. But think of the problems we have overcome in the past 75 years -- wars, inflation, the Depression, recessions, financial crises in the S&L and mortgage industries, as well as multiple bear markets. Yet, through it all, the strategy of regular investing in a diversified portfolio has worked in every 20-year period.

It's easy to make excuses for not starting out on the road to investment success, or for taking a detour along the way. Many of these are lessons only understood in hindsight.

So, if it's too late for you, pass this on to a young person who can take advantage of time leveraging small amounts of money. One day they'll be grateful. And that's The Savage Truth! (chicagotribune)