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The most successful investors dont speculate or gamble.
Theyinvestbased on knowledge, experience and data and end up with high long-term returns as a result.
So how can you earn similar asymmetric returns, minimizing risk while maximizing returns?
The wealthy make it a habit to understand where they are putting their money.
When you buy a stock you are buying a very small part of each company.
Each investment you make comes with risks and rewards.
There is a balance between taking on risk and the potential return.
Often riskier investments may have a higher potential return, but not always.
you’re gonna wanna double-check your potential investment returns meet your goals.
If you have aggressive goals you may need to take more risk to get there.
The three ETFs include investing in U.S. stocks, international stocks and bonds.
This simple, passive investing strategy works for most.
Start by simply watching what investors with a strong track record do.
An overlooked method of selecting investments is to mirror the investments of iconic investors.
Robert Johnson, chartered financial analyst (CFA) and professor of finance at Creighton University.
Many attempt to glean the principles followed by Buffett and apply them to their own investment decision-making.
A simpler way to do that is to simply invest in what Buffett invests in.
Berkshire and other institutional holders ofU.S.
stocksdetail their holdings quarterly in 13-F filings with the Securities and Exchange Commission (SEC).
These 13-F filings by Berkshire are widely followed by the media.
This gives one insight as to changes being made in theBerkshire marketable securities portfolio.
However, some more advanced investors include momentum alongside long-term fundamentals to find the best investments.
Its sturdy and durable only when all three legs are in place.
The legs are solid fundamentals, earnings momentum and timing momentum.
Solid fundamentals include a strong balance sheet, generous profit margins and plenty of free cash flow.
The long-term trajectory of stock price is directly correlated to earnings momentum.
A company that creates new products or services stands a very good chance of accelerating sales and earnings growth.
This defines earnings momentum.
I look for companies that continually have some new offerings in the early stages of the product life cycle.
I want to verify the stock is not in a downtrend.
Timing momentum means that the short-term uptrend is validated by a number of moving averages that confirm its durability.
A resource I use to put all of these pieces together isEPSMomentum.com.
Use caution however when you veer off the well-trodden path.
Remember the first point: You should understand an investment before parking any money in it.
Get Expert Help
When in doubt, seek out an expert to offer personalized advice.
Building wealth is a marathon not a sprint, and it requires a plan, Johnson said.
People should work with acredentialed financial advisorwho is a fiduciary, preferably a CFA charterholder or CFP certificant.
When we get sick we go to the doctor.
When we get into legal trouble we hire a lawyer.
Yet, somehow people believe that they should be able to navigate theincreasingly perilous financial waterswithout professional help.
Start with your end goals in mind, and invest accordingly.
When youre young, you’re free to afford to take greater risks while pursuing higher returns.
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