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8 important rules of investing everyone should know

Avatar Written by Saadia Iqbal ·  3 min read >

If you want to take inspiration from anyone for investing money, then take it from Warren Buffet. The guy has built a long-term wealth of over $89 billion and that makes him one of the richest men in America. He has only two rules for investing:

Rule No. 1 never lose money

Rule No. 2 Never forget rule No. 1

Some people say investing is complicated, some don’t know where to begin investing their money and others are just afraid of the risk. You are putting your hard-earned income to work to get what you want from life by making sure you have a sound sleep at night. Nobody would want to have nightmares about their investments going down to the drain, right? There are ways you can come out of these fears. If you hold to some golden rules of investing money, you will turn out to be a successful investor, even if you are not experienced. Here are 8 important rules of investing that will get you to the path of success:

Read also: How do rich people invest their money?

1. Start early

The earlier you start investing your money, the more you will end up within the long run. For instance, have you thought about investing for retirement? If you invest for it later on in your life, then you will have a smaller nest egg, of course. No matter what goal it is, start today so that the returns keep coming in.

2. Be aggressive when you are young and conservative as you get older

Financial advisors say you should invest in stocks and index funds while you are young since you can make up for any money you lose. But as you get closer to retirement, shift your portfolio towards less violate investments like bonds, gold or maybe even cash. In short, take a risk while you are still young.

3. Hang out with the right people

It’s really important that you hang out with positive minded and future-oriented people. Why not hang out with people better than you? When you pick associates who are better and more successful than you, you start drifting in their direction. After all, you are the company you keep.

4. Invest long-term and leave your investments alone

According to Warren Buffet, if you are not going to hold on to a stock for 10 years, then don’t even think about owning it, even if it is for 10 minutes. Taxes are not the only reasons why you should avoid investing short-term. To be honest, long-term investments bring a steady stream of profits. Remember this rule, you are not investing to get rich overnight. Don’t just panic and pull out your stocks when prices are low. Otherwise, you will just be losing a portion of the money you invested initially. If you have plans of selling out, let’s say after 3 years, that money wouldn’t be called a long-term investment. When you are investing, the key should be to invest for long-term and forget about those investments for a while.

5. Invest periodically

Here is another golden rule for investment. Rather than rushing to invest all your money at once, it is recommended to invest it bit by bit. Why not invest a portion of your paycheck in different places. This will even help you diversify your investment. Start by investing Rs.10,000 a month, then Rs.50,000 a month and so on depending on whatever you can afford comfortably. The idea is to promote financial security.

6. Invest don’t speculate

Let me make it clear what speculation is. It is when you are trying to predict changes in the market movements. Investors are not the kind of people who put their money in the market blindly. They purposefully, rationally and strategically invest every Rupee. Speculators, on the other hand, just invest their money emotionally without following a strategy. That shouldn’t be your approach.

Never jump in and out of stocks or whatever it is that you are investing your money in. Even if you are doing that to play the market successfully, don’t do it. Speculation will make you obsessed and eventually greedy and we don’t want any of that, do we? When investing money, keep it simple. Buy a value and hold on to it. Don’t even try to outsmart the market otherwise, it will outsmart you. Trust me, a lot of people have suffered because of it.

7. Diversify

Spread your eggs in multiple baskets. Investing all your money in one place is synonymous to inviting trouble. That means you are exposed to more risk. You must diversify for multiple reasons. First, you must diversify to spread the risks associated with each investment. Second, you must diversify between liquid and non-liquid investments. Why? You never know when you need to pull any of them out of the market to keep the balance. Third, you must diversify if each of your investments serve a different purpose like if you have invested in college funds, marriage or retirement separately.

If you have invested in 10 different places, it is pretty unlikely that all these investments will fail simultaneously. Hence, diversification is mandatory.

8. Keep tabs on your progress

You don’t want to just keep on investing money but not tracking its progress, right? Have a good look at your investments once a year. If you observe that market swings have thrown your assets allocation out of balance, then maybe it’s time to move money between some investments and balance your portfolio. Also, it’s not bad to rethink the asset allocation when your life undergoes changes like when you get married, get a promotion or have a baby. Tracking the investments will also help you decide when to rebalance your portfolio. After all, it is important to have your portfolio returned to a comfortable level of risk.

Before putting your cash to work, make sure you have a plan. Also, never invest in something you don’t understand. Otherwise, you will be angry with yourself if you lose money on it. Stick to what you know, do your own research and always hold onto these golden rules of investment. Good luck investing!