Investing is unarguably the fastest route to accumulating wealth. Saving can only get you so far, but investing is sure to skyrocket you to the top of the food chain.
But, like any good thing in life, investing is not an easy game. It comes with its share of ups and downs as well as some not-so-easy-to-follow principles of investment. To be a successful investor requires a great deal of learning, conscious efforts, discipline, sound decision-making skills, and patience. While these may sound easy on paper, you will begin to see how challenging they are once you get into the investing ring.
Take the stock market for example. People are scared of the stock market. Some are even quitting investing because of the stock market. True, you can lose massively or win massively. It all depends on how much you know about investing. Like any other type of investing, some people go into the stock market without a good grasp of the rules and regulations. They’re utterly unaware of financial regulations, hence they find themselves repeatedly falling into the same trap and eventually abandoning the stock market.
If this sounds like you, you will be happy to learn that we created this article to teach you some of the best-kept secrets of investing. Let’s get to it already.
Key Principles of Investment
Don’t Mismanage Money
Why is the need to invest when you are sure to lose the money at the end of the day? The goal of investing is to earn more and build wealth. But you cannot achieve that if you keep making mistakes that cost you money. The first principle of investment is to reduce portfolio losses. Without that, you will be investing for nothing. Again, reducing losses isn’t a walk in the park. That is why you must understand the market and conduct risk analysis before investing. It is common to get seduced by an asset’s potential gains and ignore its risks. But it almost always results in a loss. Don’t fall for it!
Don’t Invest In Businesses That You Know Nothing About
To summarize, don’t invest in businesses that you know nothing about, and if you must, make sure that the risks are appropriately conveyed to you before you invest, rather than subsequently.
You must learn how anything you are putting your money into operates. Whether you’re buying or selling a stock, you should understand why it’s a good time to buy or sell at that time as well as the duration when the stock you’ve purchased will possibly generate a profit.
Similarly, before making any purchase, you should completely grasp your rights and be knowledgeable about trade taxes and fees, as well as a variety of other concerns that may arise. Be in the know!
Market Timing Should Be Approached Cautiously
As an inexperienced investor, it’s easy to believe that you can ‘time the market’ and predict the best time to buy and sell stocks. When, in fact, no one can totally anticipate the market, not even so-called experts. The third principle of investment is being cautious. The market is constantly fluctuating. Today, you think you have it figured out, and tomorrow comes with a big surprise.
You ought to stay invested in the market to obtain a deeper understanding of its quirks. This will help you avoid lots of pitfalls that newbies typically fall into. In addition to that, it is important to seek expert guidance in order to determine when it’s okay to invest and when it’s not.
Consider Yourself To Be The Owner Of Each Company
Whether you’re investing in the stock market, bonds, or whatever, you should always think of yourself as a part-owner of the firm you’re investing in. Because buying stocks makes you a partial owner of the company whose stock or bonds you hold. Many investors view it as a gamble, without recognizing that there is an actual, functional business behind the stocks they hold and that if the businesses fulfil their sales quotas, they win; if it doesn’t, they lose.
Buying stocks with the mindset of being a part-owner will cause you to approach the market with the mindset of an investor rather than a gambler. It will also cause you to be more cautious when selecting companies to invest in, ensuring that their executive team is pretty reliable and has a positive effect on profitability to withstand the daily market turbulence.
When The Market Is Down, Buy and When The Market Is Up, Sell
This is one of the basic principles of investment. Every investor knows that it is time to buy when the market is at its lowest. For starters, this is when it is cheap. But you must be careful while selecting a stock to buy because some may go even lower and never rise again. Just as there is a basic time to buy, it is also common knowledge among investors to sell when the market value is high. The theory is to buy low and sell high. This guarantees high returns without sweating it. Again, while this is a basic rule, it is not always the best route. Sometimes you cannot figure out when it is high enough to sell. You could sell off stocks today and it goes even higher in the next couple of weeks. But you could keep it and a high trend suddenly goes downhill.
Again NOBODY can time the market and we need to learn a vital skill when to buy and when to sell. You need to master that.
Maintain A Diversified Portfolio
Diversification is another important rule to abide by as you take on the stock market. This is not the place to put all your eggs in one basket. Smart investors understand the importance of diversifying their portfolios. This method helps to reduce the risks associated with each stock. If one business loses money, you can recover with gains from other businesses.
Analyse Your Investment Portfolio Regularly
Constant monitoring is also an essential principle of investment. Be sure to closely monitor your accounts to determine the performance of each stock. This way, you can easily differentiate between good and bad stocks. You can always sell off underperforming stocks and invest that money in better ones. But don’t be in a hurry to sell. Be sure the stock is indeed bad.
Never Take Out A Loan To Invest
If you want to be a successful investor, you should only invest your own money and not borrow money for investment purposes. Why? It’s simple; the market is not completely predictable. You could win big or lose big. If you lose the money, you’ll be in debt. This is definitely not the start you want.
Keep Emergency Funds at Hand
This ninth principle of investment must be taken as seriously as others because ignoring it could ruin your entire effort. Before you start investing, it is smart to have some cash at hand. This should be enough to cover your basic needs and any emergency that may arise shortly. Otherwise, you will be withdrawing your investment to settle bills soon.
Don’t Just Take A Broker’s Predictions Without Conducting Your Research
On TV, podcasts, and social media platforms, it is very common to get predictions from self-acclaimed experts. They tell you what stock is going up and which is likely to fall. While it is great to listen to market experts, it is even more important to know your source of info. Not everyone on social media is an expert. Some of these predictions may come true but we have seen the majority fail woefully. Be mindful of the experts you listen to.
Whether you are a newbie or a seasoned investor, we strongly recommend applying these ten principles of investment in your adventure. These were collected from experts’ experiences and we are positive they will keep you on the straight and narrow as you navigate this highly sophisticated market.
For more assistance, don’t hesitate to contact us. We are here to help!
Want more tips?
Check out our previous blog on 6 Golden Rules For Investors. Please don’t forget to like, share, and signup to our newsletter so we can always bring you helpful tips like these. Thank you!
Recommended books for further reading:
- Smarter Investing: Simpler Decisions for Better Results
- How to Day Trade for a Living: A Beginner’s Guide to Trading Tools and Tactics, Money Management, Discipline and Trading Psychology
- Investing Demystified: How to create the best investment portfolio whatever your risk level
- The Barefoot Investor: The Only Money Guide You’ll Ever Need
- The Financial Times Guide to Investing:The Definitive Companion to Investment and the Financial Markets: The Definitive Companion to Investment and the Financial Markets
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