Invest to Win in 2007

Investing to win is always a tricky thing. The fact is that when you play to beat the market, you are taking unnecessary risks. The secret to winning is diversification and time.

1. The main concept to follow when investing is that you have to diversify and give your investments time. If you invest in one stock at the wrong time, you have a great chance of losing much of your money if it goes down in the short term. Think of it this way, if you were to buy the best stock out there, and it just happened to go down, you will lose money. If you have a bunch of different good stocks and you hold them for a long period, the chances of them all going up is greatly increased. Remember this: Including all of the stock market crashes, the market as a whole has gone up on average by more than 10% per year. If you invest in a number of different stocks (or a mutual fund) over a long period of time, you are in a better place to take advantage of this gradual increase.

2. Compound interest is one of the greatest things when investing. The concept is basically this- you earn interest on your interest. This is how money grows, and this is how it can be worth much more than you ever expected. If you get a good rate, you can expect your money to double every 5 or 6 years, which can give way to some great gains over the long term.

3. Do not put all of you eggs in one basket. You can try a few different types of investments, that way if one does horribly bad, you can still make up your losses in another type of investment.

4. Have some safety. It never hurts to have a little bit of safety in your investment portfolio, that way if some extenuating circumstances arise (like a stock market crash), you will have something that will hold its value while you wait for your other investments to hopefully rebound.

5. Try not to follow trends. This can be hard to do, because some trends seem too good to be true. Think of the technology boom of the late 1990’s. People flocked to these types of investments, only to have them be worth a small fraction of their worth by the end of the year 2000.