Investing doesn’t have to be complicated at all, and putting your hard-earned money at risk in the financial markets should allow you to achieve your life goals and help you achieve your dreams. When used correctly, the rules of investing will allow you to sleep peacefully and avoid an emotional merry-go-round. To be successful in investing, you need to have an action plan, conduct your own analysis, manage risk and, above all, be patient. For this, you also need brilliant investment ideas.
Golden rules of investing
The problem is that spectacular investments that double or triple their value are extremely rare. There are many more good, stable companies that pay regular dividends and work for you in the long term. The trick is to choose investments not only that will allow you to earn money, but also those that will be in line with your investment style and will allow you to sleep peacefully.
- Have a plan
Even before you put your money at risk in the financial markets, you need to know exactly what your investment goals are. Why and why do you invest? This will make it easier for you to determine what rate of return to expect. You will have no problem choosing the type of investment, and your investment horizon will be the result of other assumptions.
- Never invest in something you don’t understand
Actually, the headline explains everything. We should not invest in products that we do not fully understand. If we do not fully understand how leverage works, Forex or futures contracts will be riskier for us than for someone who understands exactly how these mechanisms work. The same is true of, for example, investment certificates. If you don’t understand how a product works, don’t invest. It would be stupid to suffer a loss and not even be able to explain to ourselves what happened.
- Don’t put all your eggs in one basket
Diversification is extremely important. Investing all your money in one company is asking for trouble. An investment portfolio should be diverse: many companies, different sectors, different asset classes.
- Respect the market
It happens that the market grows strongly, but it can fall even more. Don’t argue with him. If you say that the market is wrong, you really must have a very good reason for it.
- The market discounts everything
Prices on the stock exchange do not reflect the real value of a stock. They are a combination of values and expectations of investors and analysts. That is why sometimes the market reacts to good news with declines, and to bad news with increases. In fact, only after the publication of data or the announcement of something after the market reaction can we assess what investors’ expectations were.
- Investing with the crowd isn’t always the best thing
The fact is that in the short term, investing together with the crowd in fashionable companies can bring good results. The problem is that it never ends well. Most are usually wrong and very often fashionable companies end their trends with very dynamic declines. On the other side are those big investors that everyone admires. Let’s take Warren Buffet, for example. In 2000, he did not invest in Internet companies. Another example is that for the last 2 years, at every major sell-off, when CNBC was trumpeting the end of the bull market, Buffet appeared in the media and claimed that he had just bought more shares. To sum up, it is not always worth investing like the majority, because the majority is wrong.
- This time it’s different
This is exactly what happened in 2008. Everyone said that this time it was different, that there was no bubble, that real estate prices could not go down. Unfortunately, this is not true. It is never different. Markets change, but they still move in trends. After every bull market comes a bear market. The market doesn’t always grow, and even the biggest and longest trends eventually break down.
- Reinvest the dividend
Dividends need to be reinvested. Compound interest, which is the dividend that is currently being reinvested, was called the eighth wonder of the world by Albert Einstein for a reason. It is in the reinvestment of dividends that the greatest potential for investing in dividend companies lies.
- Think about value, not price
Finally, the most important thing. Despite all the above rules, you should always think about how much something is really worth, not how much the market values it.