Rules of Investing
Rules of Investing
Not long ago investing was easy. However, deregulation of the financial markets has changed all this. In the past 20 years, new investment products have been launched. Changes were made to the tax systems and retirement plans, which have altered the attractiveness of many investment products.
The deregulation of financial markets, interest rates and currencies means that the market determines the value of investments and not government ruling. This provides opportunities for educated investors to build wealth and for unwary investors to lose wealth. You must understand the opportunities and risks involved.
There are a number of ground rules in investing that haves stood the test of time. With time, patience and effort you can become a successful investor in all the areas that are open to you. Success in investing will not come overnight. You have to be prepared for the fact there will be times when you will lose money. However, perseverance is a virtue above all others. The road is not always easy, but alas, nothing worthwhile is.
Here are the ground rules for successful investing:
1. Be your own investment manager. No advisor or stockbroker should do it for you. Only you know what your real needs are, what your temperament is - and only your own best interests, not sales commissions, motivate you. It is also more fun to do it yourself.
2. Confront risk and then reduce it through spreading your investments.
3. Look for opportunities and do the opposite of what everyone else is doing.
4. Do not be put off by investment jargon. Master the jargon instead.
5. The best time to start investing is now! Do not wait for the markets to improve. If the share market is filled with gloom, that is the time to buy.
6. Make good quality shares the core of your investment strategy. Then you can rest easy when you invest in areas that are more speculative.
7. Always consider tax implications of making investments but never let tax minimization be the main objective. The fundamental rule is to think in terms of after-tax returns.
8. Keep up to date on the market through reading the financial papers and searching independent investment research websites.
9. Discussing investments is stimulating. Condition your mind to talk to others about investing, especially people who are more experienced and knowledgeable than you are.
10. Discipline yourself to cut your losses with bad investments and cash in when you have made a reasonable profit. A very important rule is not to be greedy!
11. You must be patient. You may not become wealthy overnight, but you will over time.
12. Do not invest in anything you do not understand. If a particular investment sounds too good to be true, it probably is.
13. Pay yourself first. Most people invest money they have left over after paying the bills. Allocate yourself the first 10% of your monthly income to build up your investment capital. By doing this you will force yourself to become an investor and the long term benefits will be enormous.
If you master these 13 basic ground rules, you will be a successful investor. You will rival so-called professionals and will sleep easily at night knowing that money is the least of your worries.