The Golden Rules of Investing

Active Investing - WSJ

Investing can be a great way to earn money and establish financial security for yourself. There are many different ways in which you can invest your money and many different levels of risk and liquidity. For many, the stock market is a great place to start investing.  The stock market is a place where your investment can be low risk (depending on your strategy) and highly liquid, so you will be able to mitigate your risk of loss and you will be able to access your money very easily.  Before you start investing however, there are a few rules that will save you a lot of frustration and anguish in the future and are a great guide for learning how to protect your interests when it comes to investing. The following are four golden rules that I and many others invest by and can be applied to any kind of investing.

  1. Only invest money that you can afford to lose. This means that you should only invest money that you do not need to sustain your basic living essentials. This includes being able to pay your rent or mortgage and putting food on the table. The money that you use to invest should be extra, it should be money that you have put aside as “savings” and if lost would not put a financial burden on yourself or others. This is the number one rule for any kind of investor, especially for those who are just starting out or are just thinking of getting started. This rule is what protects you when your investments go south and you lose asset value.
  2. Do your research. This means that before you make an investment (whether it is in a company, industry or technology), learn everything that there is to know about that entity and begin to understand what makes that entity work. In regards to companies and their stock, learn about how they interact with the market, who their competitors are, what their stock price history looks like, etc. It is only after you do your research and you understand what you are about to invest in, that you can confidently make that investment.
  3. Only invest in what you know. This means that you should only invest your money in things that you know and understand. This is because it is only when you know the in’s and out’s of a company or industry or technology, that you will prepared and ready to act and react to market conditions, political developments or heightened media focuses. This translates to being better able to judge when is the best time to buy and sell your investments in order to acquire the most profit. 
  4. Make every investment your own decision. This means that while it is very important that you solicit the guidance of more experienced investors, it is critical at the end of the day, that your decision to make an investment is out of your own free will and accord and is reinforced by your own research and knowledge. Never take anyone’s advice without also verifying this advice with additional research.  This will allow you to be confident in your investment decisions and it forces you to do your research and truly understand what you are investing in.

Go forth and learn. Do your research and talk to as many experienced investors as possible. Gain an understanding of the markets and of how the “system” works, whether it is the financial markets, commodity markets or real estate markets. Approach industries and companies that interest you or that seem interesting to everyone else and learn as much as you can about them. Start slowly and build up your portfolio at a rate that you can financially sustain. Good Luck and may the markets be on your side!

For more information regarding investing in the Stock Market, check out my article here: Investing in the Stock Market: An Introduction. For more information regarding investing for retirement, check out Arber Doci’s article here: Retire Financially Free



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