Investing is critical to building wealth and securing a stable financial future and plays a significant role in achieving long-term financial goals, such as retirement, homeownership, or funding children's education.

This blog post will explore five essential things nurses should know about investing by following. By understanding these core concepts, nurses can make informed decisions, maximize their investment potential, and take control of their financial futures.

1. Start Early and Embrace the Power of Compounding

One of the most essential investing principles is to start as early as possible. Starting early allows you to leverage the power of compounding, which can significantly multiply your investments over time.

Compounding refers to earning returns not only on your initial investment but also on the accumulated gains from previous periods. By reinvesting your investment earnings, you create a snowball effect that can grow your portfolio exponentially.

Example: Nurse Sarah starts investing $200 a month when she's 22 and does so consistently until she's 62. Assuming a 10% rate of return, she'll have 1.2 million dollars. If she delays just by ten years, she'll have around $450,000 instead.

The earlier you start, the longer your investments compound, potentially resulting in substantial wealth accumulation.‍

2. Be Mindful of Fees and Expenses

Fees and expenses associated with investing can eat into your returns over time. As a nurse, it's essential to be mindful of these costs and choose investment vehicles with reasonable fees. When investing in mutual funds or exchange-traded funds (ETFs), pay attention to the expense ratios, which represent the percentage of your investment that goes toward management fees and operating expenses. 

Lower expense ratios translate to more of your returns remaining in your pocket. Additionally, be cautious of high-cost investment products or financial advisors who charge excessive fees.

Example: If Nurse Sarah invested $200 a month for 40 years with a financial advisor who charges a 1% fee, that would total $284,000, minimizing her 1.2 million dollars to around $883,000 instead.

That would make the difference between having to work longer or being able to retire early.

Conduct thorough research and ask questions to ensure you understand the fees you're paying and the value you're receiving in return.

3. Diversify Your Investment Portfolio

Diversification is a fundamental strategy for reducing risk in investing. Instead of putting all your eggs in one basket, diversifying your investment portfolio involves spreading your investments across various asset classes, such as stocks, bonds, real estate, and mutual funds. Doing so mitigates the risk associated with any single investment or sector.

Consider investing in low-cost index funds or (ETFs) that offer broad market exposure. These investment vehicles provide instant diversification, reducing the risk of losing substantial amounts of money due to the performance of a single stock or sector.

4. Understand and Manage Risk

Investing always involves some level of risk. Understanding and managing risk is crucial to making informed decisions and protecting investments. As a nurse, it's vital to assess your risk tolerance, which refers to your ability to endure short-term fluctuations in the value of your assets without panicking or making impulsive decisions.

To manage risk effectively, diversification plays a significant role, as discussed earlier. It would help if you also consider your investment time horizon and goals.

Example: Nurse Sarah, 22, can invest more aggressively in the stock market because of her long time horizon.

However, Nurse Emily, 57 and nearing retirement, will have a more conservative approach, like investing in more bonds to protect her capital from potential fluctuations.

5. Think Long Term and Remember the Bigger Picture 

Thinking long-term and taking control of your financial future are essential when investing. As a nurse, you understand the value of planning and looking ahead. Applying this mindset to your investments can yield significant benefits.

Believe in your ability to think long-term and set clear financial goals. By envisioning your future needs and aspirations, you can develop an investment strategy that aligns with your objectives.

Taking control of your financial future means making deliberate choices that support your long-term goals. Instead of succumbing to short-term market fluctuations or external noise, trust your ability to stay focused on the bigger picture.

Historically, the stock market has demonstrated its ability to deliver long-term growth despite short-term fluctuations. While past performance does not indicate future results, it's worth noting that the stock market has shown positive returns over extended periods. This knowledge can provide reassurance when thinking long-term and investing for the future.

For example, looking at the historical performance of broad market indices such as the S&P 500 or the Dow Jones Industrial Average, we can see that the overall trend has been upward despite occasional downturns. Over several decades, the stock market has provided investors with the potential to achieve significant returns.

By having confidence in the stock market's resilience over time, you can stay focused on your long-term investment strategy. Understanding that short-term volatility is a normal part of the market's behavior can help you avoid panic selling or making hasty decisions based on temporary fluctuations.

It's important to remember that investing in the stock market carries inherent risks, and past performance should not be the sole basis for future investment decisions. However, recognizing the historical long-term growth potential of the stock market can provide a foundation of confidence as you navigate your investment journey.

Investing is a powerful tool for nurses to build wealth, secure a stable financial future, and achieve long-term goals. By following these five essential investing principles, nurses can make informed decisions, maximize their investment potential, and seize control of their financial futures.

Starting early and embracing the power of compounding allows nurses to harness long-term growth benefits. Being mindful of fees and expenses ensures that more of their investment returns stay in their pockets. Diversifying their investment portfolio helps mitigate risk and protect against market fluctuations. Understanding and managing risk enables nurses to make informed decisions based on their risk tolerance and investment goals. Lastly, thinking long-term and considering the bigger picture allows nurses to stay focused on their financial objectives and confidently navigate the market.

Remember, investing is not a one-time event but a continuous journey. It requires patience, discipline, and a commitment to long-term goals. While past performance and historical market trends can provide insights, it's crucial to conduct thorough research and seek professional guidance when needed.

As nurses, you possess the skills, dedication, and critical thinking ability to excel in investing. Just as you care for others' well-being, prioritize your financial well-being too. Applying these investment principles and believing in your ability to succeed can pave the way for a financially secure future.

Take control of your financial future and start investing today. Your future self will thank you for the choices you make now.

April Waddell, the Founder of NurseMoneyDate™ is a financial coach and certified financial educator exclusively for the nursing profession.