Compounding returns
Compounding is the process where earnings generate additional earnings. Reinvesting dividends and interest accelerates growth.
Example: Investing $10,000 at 7% annually grows to $19,672 in 10 years—without adding more capital.
Tax-loss harvesting
Sell underperforming investments to offset gains and reduce tax liability. These realized losses can also offset up to $3,000 of regular income per year.
Be mindful of the wash-sale rule, which prevents claiming a loss if you repurchase the same security within 30 days.
Dollar-cost averaging (DCA)
DCA means investing a fixed amount regularly, regardless of market conditions. This smooths out purchase prices and reduces the risk of investing at market highs.
It’s ideal for long-term investors and aligns with disciplined investing.
Using DRIPs (Dividend Reinvestment Plans)
DRIPs automatically reinvest your dividends into additional shares of the same stock—without commissions.
This accelerates portfolio growth over time and supports compounding returns.
Behavioral finance tips
- Avoid Herd Mentality: Just because others are buying doesn’t mean a stock is a good investment. Do your research.
- Stick to a Plan: Have clear goals and an investment strategy. Don’t let emotions derail your approach.
- Don’t Try to Time the Market: Even professionals struggle with this. Focus on long-term trends.
- Rein in Overconfidence: Past success doesn’t guarantee future results. Stay humble and informed.
- Diversify Intelligently: Don’t put all your money in one stock or sector. Spread risk across different assets.
- Recognize Cognitive Biases: Understand anchoring, confirmation bias, and loss aversion to avoid costly mistakes.
- Regularly Reassess Your Portfolio: Your risk tolerance or goals may change—make sure your investments still fit.