I used to monitor my investments on a daily basis. Being a micro-manager of my money backfired as I began to second guess many of my investments in the stock market. I wasted too much of my time following stocks and not enough time working to earn reliable income. A few years ago, I decided to take a more hands-off approach to my investing. Since then, I watched as my 401(k) recovered. My emergency savings account grew larger while the balance on my mortgage shrunk. My net worth increased after I had struggled with negative net worth and debt for decades.
Forgetting about a DRIP
I lost more than $25,000 by purchasing speculative stocks that dropped quickly in value. In many cases, I prematurely sold stocks that went on to double or triple just weeks after I hit the "sell" button. More than 10 years ago, I purchased a dividend reinvestment plan or DRIP that I forgot about. I finally opened some old mail that I had put aside only to find the DRIP from a decade ago had given me a 75 percent return. I've found I make more money by picking my investments and then ignoring them. Since the "buy-and-hold" strategy can still be risky with individual stocks, I practice it with exchange-traded and mutual funds.
Paying myself first
I spent years paying myself last because I'd only save after paying all of my bills. A few years ago, I set it up so 6 percent of my paycheck would be automatically diverted to my 401(k). I had 4 percent of my paycheck funneled into a savings account for emergencies. I also set up automatic transfers from my checking to my savings account that correlated with specific savings goals. My online banking site had a calculator that figured out how much I needed to save to meet my savings goals by a target date.
Pretending to be broke
Another way I build wealth is by ignoring the money I receive as pay raises and bonuses. I think of the extra money as temporary employees who are going to work for me. When I receive a 3 percent pay raise, I immediately change the percentage that I'm saving for retirement and other goals. I use unexpected windfalls to pay down my car loan and mortgage. I figure my investment money is working for me because of compound interest, but it's also working when I pay down debt by saving me on interest charges.
Whenever I'm tempted to get too involved with my investments, I play a virtual stock market game. I leave my real investments alone so they can grow without my interference. Although it's disappointing when my pretend investments experience double digit gains in just a few days, my losses "on paper" keep me grounded in reality. I only check my retirement accounts about four times a year. As long as I ignore the doom-and-gloom financial articles, I feel as though I'll do just fine.
More from this contributor:
- Personal Finance - Career & Education
- Financials Industry