Investing is neither complicated nor difficult. There are some golden rules that can help investors stay on track to meet their long-term financial objectives. When it comes to money management, investments play a significant role in wealth creation. It may be difficult at first to decide which product to select, where to invest, how much to keep, and so on. However, as you progress, you will gain a better understanding of how the investment market operates.
Remember that no matter how disciplined you are or what rules you follow, investing involves risks, and you may receive less than you invested.
Here is a summary of the ten rules that every investor should be aware of:
- Conduct your own research.
Don’t believe everything you read on the internet; make sure it’s supported by multiple credible sources. Most people are biassed toward the cryptocurrencies they own, so they can’t help but praise the coins in their portfolio while criticising the ones that aren’t. Make an effort to understand the benefits and drawbacks of cryptocurrencies and form an unbiased opinion.
- Set specific objectives.
Knowing your financial objectives and the time frame in which you plan to invest can help you stick to your strategy. For example, if you have long-term goals, such as saving for your children’s education or your own retirement, you may be less tempted to invest before that time.
- Never put your money into something you don’t understand.
Before making any investment, thoroughly research it so you understand exactly what is involved and what the risks are. Funds, for example, publish a Key Investor Information Document (KIID) or a Key Information Document (KID) that describes the fund’s main functions and fees. Before you invest, you must read this. If you are investing in individual projects, ensure that you understand what the company is doing and how it intends to make money in the future. Projects in the cryptocurrency market also have various documentation, such as a white paper and a roadmap. Before investing, you should research everything and join the project’s social networks to understand the general mood of the project and investors and to stay up to date on the latest news.
- Don’t put all of your eggs in a single basket.
This rule is more relevant than ever today. We’ve all heard the expression “don’t put all your eggs in one basket,” but this is especially true when it comes to investing. Spreading your money across a variety of asset types and geographies ensures that you are not overly reliant on one type of investment or region. This means that if one of them underperforms, some of the other investments may compensate, though there are no guarantees.
- The greater the potential return, the greater the risk.
Higher returns may be appealing, but there is usually a greater risk of losing money. Consider your approach to risk carefully. You may feel more at ease selecting less risky investments, even if the returns are likely to be lower. However, keep in mind that no investment is without risk, and there is always the possibility of earning less than you invested. If the temptation to invest in a highly profitable but high-risk asset consumes you from within, invest only a small portion of your total deposit.
- Long-term investments do not always produce high returns.
First and foremost, we must determine what level of profitability we expect from a company or project. We do not believe the company will be around for decades based on the documentation and roadmap. First and foremost, we contend that with sufficient effort, the project’s capitalization can be doubled. Yes, it could take years. However, the goal should be expressed in terms of profit percentage rather than investment period. After all, it is possible that the value of assets will return to pre-decade levels, or that the company will simply close.
- When something appears to be too good to be true, it usually is.
Be wary of highly speculative investments that appear too good to be true, and don’t just invest (or sell) because everyone else is. Many investors, for example, invested in bitcoin in the second half of 2017, when its price rose, but its value fell by half in a month. Bitcoin was trading at nearly $20,000 in mid-December 2017, but it had fallen below $10,000 by mid-January 2018. Those who couldn’t handle the stress at the time and sold “at the bottom” suffered losses.
A lot of money.
- Reinvesting income or cost averaging can help boost overall returns.
The DCA strategy reduces asset volatility and eliminates the need to constantly monitor a company or project. If you are not looking for a quick return on your investment, consider reinvesting your funds to buy more of your investment, which may increase in value and increase your overall profit. Simply put, your earnings produce a return known as compound interest. Keep in mind, however, that reinvesting income rather than receiving it in cash means you may lose it or see its value decrease. If any income you receive is automatically reinvested – for example, if you invest in shares directly and subscribe to Automatic Dividend Reinvestment (ADR) – you will also be unable to choose the price at which you will purchase any additional shares, which could be low or high.
- Rebalance your portfolio after reviewing it.
Markets, and thus your investments, are constantly changing. Because you will be investing for a long time, it is critical to conduct regular checks to stay on top of your money. When your initial asset allocation becomes out of balance, you must rebalance it. For example, the market can move in various directions, affecting the percentage of your investment. Do you want to work on maintaining a percentage that will assist you in meeting your objectives? When the market fluctuates, you can have a lot more of one asset class than another if you don’t take action.
To return to your desired asset allocation, you buy or sell certain investments as part of the rebalancing process. When the goal is to minimise risk, this can help prevent a portfolio from being overly aggressive. Furthermore, by rebalancing, you will avoid having too many assets of a particular class and will return your portfolio to its original set of assets.
- Do not attempt to time the market.
In an ideal world, you would be able to buy investments just before they rise and sell them just before they fall. However, no one knows which way the stock markets will move next, so attempting to forecast market ups and downs may result in you buying or selling at inconvenient times. Buying and holding investments can help you stay committed to your investments over time by avoiding panic decisions in volatile markets.
Use these golden rules if you want to begin investing. You can make your money work for you and protect your future by using these simple investment strategies. If you believe that the potential reward is insufficient to justify the risk, investing is not for you.