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Our Three Rules for Getting More Out of Your Investments

Our Three Rules for Getting More Out of Your Investments

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Using The Motley Fool, this piece highlights tips and tricks on how to make smarter, more effective investment decisions.

From Dogecoin to GameStop, there are all kinds of investments making headlines these days — and as a result, it can be hard to know how best to grow your money. Do you go big in Shiba Inu or stay the course in the S&P 500? How should you hedge against inflation? And what about NFTs?

Luckily, the experts at The Motley Fool have a tried and true philosophy that you can use to potentially get the most out of the stock market, whether you’re ready to start investing for the first time, their guides on how to invest in stock market for beginners or if you are looking for tips on how to make smarter, more effective investing decisions for the intermediate investor this resource is a must have.

For nearly 30 years The Motley Fool has helped make investors smarter, happier, and richer using these three rules, and now you can, too. 


Rule 1: Diversify Your Portfolio

Generally speaking, the stock market goes up. It doesn’t go up every year — in fact, it tends to dip once every three years. But taken as a whole, it trends upwards because collectively, companies’ good decisions win out in the long run. In order to reap the rewards of those good decisions, however, we believe you need a diverse portfolio. If you put all your eggs in one basket, you could pick a winner … or you could pick a flop. Investing in a variety of companies is the smart way to hedge against that uncertainty. 

The Magic Stock Number

So how many companies comprise a diverse portfolio? At The Motley Fool, they’ve long recommended investing in at least 25 companies to maximize your return. Of course, that just leaves you with having to pick 25 companies to invest in — and that’s no easy task.

For help, sign up for Stock Advisor, Rule Breakers, or Everlasting Stocks and you’ll receive regular recommendations on which companies to invest in.

The Snowball Effect

You don’t have to invest in all 25 stocks all at once, and with everything you have. In fact, they recommend taking the opposite approach: invest regularly over time to build up your portfolio’s size and momentum over time, just as you would when making a snowball. 

Rule 2: Hold Onto Your Stocks

Remember what we said earlier about the stock market going up in the long run, but not always year after year? Because the stock market naturally fluctuates, the best way to make the most gains is to treat it as a long term investment. Don’t invest money you expect to take out in a few months or even a few years. Instead, give your money time to grow.

The Five Year Investing Rule

How much time brings us to the five year rule: Put money in for no less than five years. Short investments can be a gamble because you never know what the stock market will do year over year. Stay the course and you’re more likely to see returns that are worth the wait.

Don’t Panic

It’s easy to worry when the stock market dips. But remember, you’re not looking to grow your money in just a year or two. You’re interested in the stock market’s long term performance, so you have time to wait out market volatility. Instead of selling your stock, hold onto it. You might even want to take advantage of the lower rates and invest more heavily in your top performers.

Rule 3: Back Your Winners

When it comes to high performers, you can’t have too much of a good thing. As long as your portfolio is diverse — remember the magic stock number — it doesn’t hurt to continue investing in your top stocks. Strong, growing companies are always a great investment.

The Winners Rule

At The Motley Fool, not every one of their stock picks is a winner. But the majority of them are: 60 to 70% of their recommendations come out ahead. Those are great odds, especially when you consider that top performers tend to make much more money than the poorest picks lose. Which means even if three out of ten picks lose money, chances are the remaining seven will grow your money enough that you’ll come out ahead.

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