The number of people currently invested in stocks is showing a downward trend, now at just 54% of Americans. If fewer people are holding stocks, but the markets are trending upward, each one of your stocks will see a growth in value. When dentists and other professionals invest in stocks, they need to be aware of the current state of affairs to make a smart investment.
Here are three essential factors to remember before investing.
1. Holding Onto Cash Is a Problem
Thanks to a fairly dependable inflation figure that hovers around 3%, any cash that’s sitting around is losing value every year. If the money you have isn’t growing at least 3% every year, you’re losing that money to inflation. Ideally, you should be growing by 5%-10% every year to outpace inflation and build wealth.
Dentists are typically risk-averse and may feel there are only two types of investment. If you’re categorizing investments as either “risky” or “safe”, you don’t realize there could be good opportunities for well-paced growth that don’t leave you uneasy.
While you need some cash if you make a career change, it’s not useful in the long term.
No matter what your retirement plan is, don’t make it a savings account. Have some investments that grow for you to cash in on later.
2. Don’t Repeat Yourself
If you invest in stocks or mutual funds that do the same thing, you’re not balancing your portfolio. If one of them goes down, they all go down. If one is on a slow climb, they’ll all be on a slow climb.
This is what people mean when they say “diversify your portfolio”. Trying to guess which stocks or funds are going to skyrocket will be more trouble than it’s worth. Your investments will be part of an average based on overall trends in the financial sector.
3. Don’t Lose Yourself To Trends
You might get a hot tip that a certain sector is going to see some wild growth this year or that you need to invest in gold. While you might get tempted to chase these trends down, you won’t need to if you have a broad enough portfolio.
While you might hear a tip about the best lithium stocks, don’t rush to invest everything there. Add a little at a time.
Instead of running from one industry to the next, a diverse portfolio will have a percentage in every major sector. If lithium goes up, you’ll see a spike. If agriculture goes down, you’ll be cushioned from that dip by energy’s spike, and so on.
Don’t get scared and jump in and out. The markets all trend upward. Although they may have days or even months that they’re down, jumping in when something is really hot could have a high price. If it goes back to a normal level of growth, your perspective on that commodity will be hampered by your initial loss.
Invest In Stocks That Show Good Potential
When you invest in stocks, whether individually or through a mutual fund, you can choose which industries you trust the most. High growth industries will cost more to get your foot in the door while slowly growing industries will make sure you build reliable wealth in the future.
Reliable stocks can help you weather any changes in your career or to ensure you’re growing wealth even if you take some time to move your practice.