Investments are neither too complex nor it’s too difficult to the trained. However it may be too hazardous for anyone jumping in without getting a frail knowledge of it. There are some golden rules of investing that can help the investors stay on track to achieving their goals. Once we start, it can be quite difficult to decide on what to invest on and how, but over time things might start making sense.
Irrespective of the knowledge of how investing works and how the market behaves as a whole, there is always a chance of risks associated with any investment process. Here is an outline of some of the most basic rules when starting with investing.
Do the Research
Do not follow the latest investment expert over the internet, or your friend too, even if their mantra is backed by credible sources. People are normally biased about investments they own. So better to start your own research to get an unbiased opinion.
Set Your Own Realistic Goals
Being aware of your financial goals, and the realistic timeframe you wan’t it to achieve in, helps you stay focused. Rather that trying to time the market for greater returns, and washing out everything, you will more likely to stick to the plan.
Don’t Invest in Instruments you don’t Understand
Before investing in any instrument, make sure to research on it and understand. Every type of investment instrument comes with a Key Information Document, which will give you more insight on that investments main functions, fees, risks, etc. Only when you understand the instrument, do make a decision whether to invest into it or not.
Don’t put all the Eggs in one Basket
In today’s world, when every information is on our fingertips and everything being linked, it makes more sense to spread out the investments too. It’s always better to spread the investment across multiple products and regions. This will make sure that if any of the investment performs poorly, then the other investments can possibly make up for it.
Greater the Risk, Greater the Return
Do not fall into the trap of some investments giving higher returns. Be aware that greater the return, higher the associated risk is too. Even if all investments do carry a part of the risk, it’s not wise to go all-in for a high risk investment. You can use a small chunk of your investment principal in a high risk investment.
Long-Term Investment doesn’t always mean High Returns
We have heard of stories when some people have turned millionaires just by their investment in one company. Do not fall for that trap. It might be possible, but no one knows if the company is going to be there forever. Focus on your plan, and exit when the plan says so.
Do not try to Time the Market
Do not ever try to do this. While everyone wants to be able to buy at the lowest and sell at the highest, it’s practically impossible to do so. It might cause you to do panic buy and sell, and the losses would be huge. It almost never about when you enter the market, but mostly about how long you have been there.
Review & Rebalance your Portfolio Periodically
While you might have a great portfolio now, it always makes sense to look back at your portfolio every couple of months and make changes according to market conditions.
Follow these few rules of investing when getting started. It will help you create your own strategies for the market. And this should give you the potential rewards that you deserve in your life.
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