New to investing? Know these rules before you invest
What's the story
There are many different types of investments, including stocks, bonds, real estate, commodities, mutual funds, and more. The goal of investing is to grow your wealth over time and at a rate that beats inflation, while also balancing risk and return. If you are new to the world of investment and want to successfully navigate through it, adhere to these five rules of investing.
Risk capacity
Know your risk tolerance
Start with determining your risk-taking capacity - whether you want to be conservative with your investment or want to play aggressively. The risk associated with investing varies from instrument to instrument. For instance, investing in the stock market is riskier than investing in bonds. Before you commit to any asset class, assess your needs, goals, and your capacity to bear risk.
Diversification
Diversify your portfolio
As the adage goes, "Don't put all your eggs in one basket," similarly it is always better to allocate your money across different asset classes and industries. Diversification is an important investment rule that can help reduce the overall risk of your portfolio. If one of your picks goes awry, you have others to mitigate your losses.
Long term
Have a long-term perspective
American economist Paul Samuelson has rightly said, "Investing should be more like watching paint dry or grass grow. If you want excitement take $800 and go to Las Vegas." Investing is a game of patience; it is a marathon, not a sprint. Having a long-term perspective can help you stay disciplined and avoid making impulsive decisions based on short-term market fluctuations.
DIY
Do your own research
There are many investment pundits out there with their ill-intentioned advice and tips. Stay away from the noise and do your own due diligence before investing your hard-earned money into any instrument. It is important that you do your own research and understand the risks and potential rewards associated with each investment. That is the only way to continuously generate better returns.
Discipline
Stay disciplined
Finally, it is important to stay disciplined with your investment strategy. Avoid making impulsive decisions based on short-term market movements, and stick to your long-term investment plan. Be consistent with your investment strategies and never go off-focus from your financial goals. This consistency and discipline can lead to a more stable investment portfolio and better returns over the long term.